TaxProf Blog

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

Monday, March 5, 2018

Oei & Ring Present Tax And Labor Law: New § 199A Today At BYU

Oei Ring (2018)Shu-Yi Oei (Boston College) & Diane Ring (Boston College) present The Other Labor Law? New IRC § 199A and the Impact of Tax on Workplace Arrangements at BYU today as part of its Tax Policy Colloquium Series hosted by Cliff Fleming and Gladriel Shobe:

As part of the 2017 tax reform, Congress enacted new IRC § 199A of the Internal Revenue Code. This new “qualified business income” (QBI) provision grants passthrough taxpayers, including qualifying workers who are independent contractors, a deduction equal to 20% of a specifically calculated base income amount. An important question is new Section 199A’s effects on work and labor markets, and specifically whether the new provision will give rise to a large-scale shift in the workplace, causing many workers to be reclassified as independent contractors.

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

McMahon: Tax Policy Elegy

ABA Tax LawyerMartin J. McMahon, Jr. (Florida), 2018 Erwin N. Griswold Lecture Before the American College of Tax Counsel: Tax Policy Elegy, 71 Tax Law. ___ (2018):

For over four decades there have been unrelenting calls to make the tax code “fair, simple, and efficient.” But despite nine major tax acts between 1969 and 2003, along with many less extensive tax acts, the refrain for a “fair, simple, and efficient” tax code has continued to be heard. This continuing plea is not surprising, because over the decades the tax system has evolved to ask the highest income earners to pay less in taxes, become ever more complex, and eschewed “efficiency” in favor of the allowance of an ever-increasing number of tax preferences. Tax act after tax act failed to produce a fair, simple, and efficient tax code. The recently enacted Tax Cuts and Jobs Act is simply another failure to enact tax reform that provides a fair, simple, and efficient tax code. The call for a “fair, simple, and efficient” tax code has become a mere trope. True “tax reform” entails revising the tax code better to meet normative tax policy criteria.

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March 5, 2018 in ABA Tax Section, Scholarship, Tax | Permalink | Comments (1)

Lesson From The Tax Court: The Tax Lawyer's Wedding Toast

During the first week of teaching federal income tax I give a homework assignment where I ask students to compare the 2011 tax returns of Mitt Romney and Hillary Clinton. Students must decide who had the heavier tax burden. You can find these returns (and many more) on the Tax Analyst Tax History website. Here’s what we usually come up with in class:

  Total Income Taxable Income Tax     % of Total Inc. % of Taxable Inc.
Romney $13,709,608  $9,007,709  $1,912,529 14%    21%
Clinton $14,899,139  $11,628,845  $4,336,068 29%    37%

My students are surprised by this result. Although they had similar total incomes, Romney and Clinton paid hugely different amounts and percentages of taxes no matter how you measure tax burden. But there is nothing nefarious about it. It simply reflects Congressional choice to tax capital gains at a lower rate than ordinary income.

To get the lower tax rate the gain must come from a sale or exchange of something called a “capital asset” that has been held for more than one year. Romney’s income came mostly from sales or exchanges of capital assets while Clinton’s came mostly from her labor. That difference in source made the difference in tax. Whatever one thinks about Clinton’s speaking fees, they still resulted from her labor and so were taxed at significantly higher rates than Romney’s capital gain income, even though dollars derived from labor have the same purchasing power as dollars derived from capital.

This preferential tax treatment for capital gains over labor income is a subsidy whereby Congress shifts dollars from one set of taxpayers (those like Clinton) to another set of taxpayers (those like Romney). It’s a subsidy just like the Earned Income Tax Credit (EITC) except that the EITC shifts dollars from higher earning taxpayers to lower earning taxpayers. So who does Uncle Sugar love more? Why, folks like Romney!! In 2016 the federal government spent about $106 billion to subsidize taxpayers who, like Romney, received income from capital sales or exchanges. In comparison, it spent $63 billion on the EITC subsidy. You can see these figures in the JCT’s latest Estimates of Federal Tax Expenditures.

Congress does put some restrictions on this rate subsidy. For example, §1211 generally prevents taxpayers from deducting capital losses against ordinary income.  After all, if a gain from the sale or exchange of a capital asset gets a lower rate, then a resulting loss should not be able to shelter otherwise higher taxed gain but only similarly taxed gains.

So when taxpayers have gain from the sale of some kind of property held for more than one year, they really want that lower tax rate. They want their gains to be from the sale of a capital asset. Contrariwise, when taxpayers have losses from the sale of some kind of property, taxpayers would really like to deduct those losses from their ordinary income, the kind that gets taxed at a higher rate. They want those losses to be from the same of property that is not a capital asset.

So what the heck is a “capital asset”? That is the lesson in Sugar Land Ranch Development, LLC, Sugar Land Advisors, LLC, Tax Matters Partner v. Commissioner, T.C. Memo 2018-21 (February 22, 2018). There, the taxpayers were able to transform properties that did not qualify as capital assets before 2008 into properties that did qualify as capital assets when they sold the properties for a net gain in 2012. So they got the rate subsidy. How’d they do that? Details below the fold, along with the Tax Lawyer’s Wedding Toast.

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March 5, 2018 in Bryan Camp, New Cases, Tax | Permalink | Comments (2)

Schmalbeck, Soled & Thomas:  The Case For A Carryover Tax Basis Regime

Richard Schmalbeck (Duke), Jay A. Soled (Rutgers) & Kathleen DeLaney Thomas (North Carolina), Advocating A Carryover Tax Basis Regime (At Least for Now), 92 Notre Dame L. Rev. ___ (2017):

For close to a century, an important (but unfortunate) feature of the Internal Revenue Code has been a rule that the tax basis of any asset is made equal to its fair market value at death. Notwithstanding the substantial revenue losses associated with this rule, Congress has retained it for reasons of administrative convenience.

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March 5, 2018 in Scholarship, Tax | Permalink | Comments (1)

TaxProf Blog Weekend Roundup

Sunday, March 4, 2018

A Taxing Oscars: $100,000 Swag Bags Come With $50,000 Tax Bill

OscarsMoney, This Year's Oscar Swag Bags Could Come With a $50,000 Tax Bill:

Swag bags are a big perk of going to the Oscars. But movie stars who accept the goodies could owe a hefty tax bill. ...

For top-earning movie stars, the result could be a tax bill that eats up roughly half the value of the bag. While the recent Tax Cuts and Jobs Act lowered the top federal income tax rate, it still amounts to a hefty 37%. There’s also state income tax, which in California tops out 13.3%. In other words, movie stars who collect a gift bag worth $100,000 could end up owing $50,300 in state and federal taxes. ...

To be sure, stars have some options to avoid paying out of pocket for stuff they don’t really want, says San Francisco tax lawyer Robert Wood [Oscars $100K Swag Bag's Taxing Price Tag].

IRS, Gift Bag Questions and Answers:

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March 4, 2018 in Celebrity Tax Lore, 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.

  1. [32,550 Downloads]  The Games They Will Play: An Update on the Conference Committee Tax Bill, by Ari Glogower (Ohio State), David Kamin (NYU), Rebecca Kysar (Brooklyn) & Darien Shanske (UC-Davis) et al.
  2. [1953 Downloads]  Understanding the Tax Cuts and Jobs Act, by Sam Donaldson (Georgia State)
  3. [1030 Downloads]  Federal Income Tax Treatment of Charitable Contributions Entitling Donor to a State Tax Credit, by Joseph Bankman (Stanford), David Gamage (Indiana), Jacob Goldin (Stanford) & Daniel Hemel (Chicago) et al.
  4. [703 Downloads]  Is New Code Section 199A Really Going to Turn Us All into Independent Contractors?, by Shu-Yi Oei (Boston College) & Diane M. Ring (Boston College)
  5. [464 Downloads]  The Tax Lifecycle Of A Single Member LLC, by F. Philip Manns Jr. (Liberty) & Timothy M. Todd (Liberty)

March 4, 2018 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

Saturday, March 3, 2018

This Week's Ten Most Popular TaxProf Blog Posts

Tax Articles In The Louisiana Law Review

LSU Logo (2018)Jonathan D. Grossberg (American), Attacking Tax Shelters: Galloping Toward a Better Step Transaction Doctrine, 78 La. L. Rev. 369 (2017):

Since the beginning of the Internal Revenue Code, taxpayers have sought to lower their tax bills through creative tax planning. The step transaction doctrine is one of several tools used by the Internal Revenue Service and courts to challenge tax shelters and tax evasion. The step transaction doctrine provides that the courts may combine two or more allegedly separate steps in a multi-step transaction into a single step to better reflect the economic reality of the taxpayer’s actions. Derived from Supreme Court decisions in the 1930s, the doctrine deserves renewed scrutiny today because serious conceptual issues exist regarding the three current tests that courts use to determine when to combine various steps in a tax-motivated multiple-step transaction. This Article addresses two perennial themes in tax law: the role of judicial doctrines in a statutory system and the difficulty of taxing related-party transactions. This Article argues that courts should reformulate the binding commitment, interdependence, and end result tests as two objective tests: an objective test based on the law of offer and acceptance for arms-length transactions and an economic reality test for transactions between related parties. These new tests provide conceptual clarity and promote predictability while protecting the public treasury. The new tests borrow underlying concepts from contract and commercial law. The new tests demonstrate the fruitful possibilities of borrowing across areas of law. They also demonstrate that tax law shares similar concerns with other areas of law—a proposition that is sometimes doubted. This Article further contends that the step transaction doctrine, as reformulated, should be available for assertion by taxpayers in transactions between unrelated parties. Acknowledging the availability of the test for assertion by taxpayers will have the salutary effect of aligning the letter of the doctrine with its application.

Christine D. Allie (Delaware), Negating the Cost of “I Do”: Ending the United States Tax Code’s Family Penalty Through Permissive Joint Filing, 78 La. L. Rev. 499 (2017):

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

Epstein: The Constitutional Protection Of States Against Federal Taxation And Regulation

Richard A. Epstein (NYU), Dual Sovereignty Under the Constitution: How Best to Protect States Against Federal Taxation and Regulation, 49 Ariz. St. L.J. 935 (2017):

There is little doubt that the Framers of the United States Constitution had little awareness of the immense complexities that would creep into the constitutional system that they created in 1787 in Philadelphia. Their challenges were enormous given the necessity to determine the appropriate relationship of the states, both with each other and with the federal government. It is that last question that is the focus of this article, which asks the simple question of what level of protection states have from taxation and regulation by the federal government. ...

[T]he Supremacy Clause is said to fuel federal dominance of states on both matters of regulation and taxation, which leads to federal activities that are highly intrusive on the way in which states can conduct their own government affairs. The unfortunate efforts of the Obama-era Department of Labor to extend the reach of the FLSA over state agencies shows the limitless nature of the power, subject only to political restraints that often prove highly ineffective. The correct response is a return to the earlier constitutional principles, which worked well when in place. A constitution is intended to be an enduring document based on first principles of government. The older rules on intergovernmental immunity were honest efforts to reach the proper legal equilibrium. The recent rejection of these rules represents a major decline in the wisdom and effectiveness of modern American constitutionalism under its flawed progressive model.

March 3, 2018 in Scholarship, Tax | Permalink | Comments (1)

Friday, March 2, 2018

President Trump To Name Michael Desmond IRS Chief Counsel

DesmondBNA is reporting that President Trump plans to appoint Michael J. Desmond IRS Chief Counsel and Treasury Department Assistant General Counsel:

After serving as a law clerk for a Federal judge in Los Angeles, Mike began his career in tax controversy as a Trial Attorney with the Attorney General’s Honors Program at the Tax Division of the U.S. Department of Justice. After the Justice Department, Mike worked at a boutique tax firm in Washington, D.C., where he was elected partner in 2004. In this capacity he represented clients ranging from Fortune 100 companies to partnerships and individuals. Mike returned to government in 2005, serving as Tax Legislative Counsel in the U.S. Department of Treasury through 2008. As Tax Legislative Counsel, Mike was the Department’s senior legal advisor on domestic tax issues, testifying before Congress and working with senior IRS officials including the IRS Commissioner and Chief Counsel on a broad range of tax policy, legislative and regulatory matters. Following his tenure at the Treasury Department, Mike spent several more years as a partner in a global law firm [Bingham McCutchen] before starting his own practice in January 2012.

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March 2, 2018 in IRS News, Tax | Permalink | Comments (0)

Olson Presents The State Of The IRS Today At Minnesota

Olson (2018)Nina Olson (National Taxpayer Advocate) presents The State of the IRS at Minnesota today as part of its Perspectives on Taxation Lecture Series hosted by Kristin Hickman:

Drawing from her 2017 Annual Report to Congress, Ms. Olson will talk about problems facing the IRS and the implications for tax compliance and enforcement, including:

  • IRS funding and personnel cuts
  • Declining audit rates
  • Flawed implementation of congressional mandates requiring the use of private debt collectors and the denial of passports to certain U.S. citizens with substantial tax debts

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March 2, 2018 in Colloquia, IRS News, Tax | Permalink | Comments (0)

Tax Policy In The Trump Administration

NY Times: Spreadsheets at Dawn — The New Tax Battle Is All About Data

New York Times, Spreadsheets at Dawn: The New Tax Battle Is All About Data:

The new Republican tax cut is providing a powerful weapon for the law’s supporters and detractors, as well as investors and analysts, who are mining data on how companies are spending their windfalls in a battle to sway the behavior of voters and executives alike.

In the two months since President Trump signed the $1.5 trillion tax bill into law, a vast arsenal of spreadsheets has begun to capture, in real time, the effect of the tax cut as it works its way through corporate balance sheets. Traders are compiling data to find value in a volatile stock market. Advocates of corporate responsibility are hoping to shame companies into passing more of their savings on to employees or charities. Partisans are using it to sway public opinion.

None of the data, as of yet, yield anywhere close to a full picture of how the tax cuts are flowing through corporate boardrooms and into the American economy. But that has not stopped politicians and organizations from using it to advance their goals.

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March 2, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

NY Times, WSJ: Who Wins From The Corporate Tax Cuts?

WSJWall Street Journal, Boom in Share Buybacks Renews Question of Who Wins From Tax Cuts:

U.S. companies are buying back their shares at an aggressive pace, stirring debates in Washington and on Wall Street about how savings from corporate tax cuts are being used and who benefits most.

Share buybacks announced by large U.S. companies have exceeded $200 billion in the past three months, more than double the prior year, according to a Wall Street Journal analysis of data for S&P 500 companies. Among the biggest: Cisco at $25 billion, Wells Fargo at about $21 billion, PepsiCo at $15 billion, AbbVie and Amgen at $10 billion apiece, and Alphabet Inc. at $8.6 billion.

Announced buybacks surged in December as lawmakers in Washington finished writing a bill to cut U.S. taxes by $1.5 trillion over a decade, and continued at a robust pace in January and February. ...

The early moves are spurring a political debate about whether the tax cut is working; the full answer won’t be fully understood for months or years as the new money moves through the economy. ...

House Minority Leader Nancy Pelosi (D., Calif.) has labeled bonuses “crumbs” compared with the size of the corporate tax cuts.

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March 2, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Thursday, March 1, 2018

Gamage Presents Tax Reform To Help The Working And Middle Class Today At Illinois

Gamage (2019)David Gamage (Indiana) presents Tax Reform to Help the Working and Middle Class at Illinois today as part of its Faculty Workshop Series:

This project argues that future tax reform ought to be designed so as to provide much greater tax benefits for those in the working and middle class, both as compared to the law prior to the recent 2017 tax legislation and (especially) as compared to the new law after that recent legislation. This project will develop this argument both at the level of “why” and at the level of “how”. In doing so, this article will evaluate both policy and political feasibility. However, political feasibility will not be evaluated based on the current President or Congress. Instead, the political feasibility dimension will be evaluated primarily in terms of what might feasibly be campaigned on by candidates in upcoming election cycles and then later enacted if a new President and Congress—with different priorities—takes office in 2020 or in a subsequent election cycle.

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March 1, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Ring Presents Silos And First Movers In The Sharing Economy Tax Debates Today At Indiana

Ring (2017)Diane Ring (Boston College) presents Silos And First Movers In The Sharing Economy Debates at Indiana today as part of its Tax Policy Colloquium Series hosted by Leandra Lederman:

Over the past few years, a significant global debate has developed over the classification of workers in the sharing economy either as independent contractors or as employees. While Uber and Lyft have dominated the spotlight lately, the worker classification debates extend beyond ridesharing companies and affect workers across a variety of sectors. Classification of a worker as an employee, rather than an independent contractor, can carry a range of implications for worker treatment and protections under labor law, anti-discrimination law, tort law, and tax law, depending on the legal jurisdiction. The debates, at least in the United States, have been incomplete due to the failure of policy makers and advocates to consider the scope and interconnectedness of the worker classification issues across the full sweep of legal arenas. There is time, however, to remedy the incompleteness of these policy conversations before worker classification decisions ossify and path dependence takes hold.

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March 1, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Dyreng Presents Tax Avoidance And Tax Incidence Today At Duke

DyrengScott Dyreng (Duke) Tax Avoidance and Tax Incidence (with Martin Jacob (WHU–Otto Beisheim School of Managemen), Xu Jiang (Duke) & Maximilian A. Müller (WHU–Otto Beisheim School of Managemen)) at Duke today as part of its Tax Policy Workshop Series hosted by Lawrence Zelenak:

We examine corporate tax avoidance in a setting where shareholders might not bear the entire economic burden of the corporate tax because the firm’s market power allows it to pass the burden to workers or consumers. Depending on the model conditions, tax avoidance increases or decreases in market power. Using empirical analyses, we find that high market power firms avoid less tax than low market power firms. We also find empirical support for the model conditions underlying this result.

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March 1, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Knoll Presents What Is Tax Discrimination And How Can It Be Prevented? Today At UCLA

KnollMichael Knoll (Pennsylvania) presents What Is Tax Discrimination and How Can It Be Prevented? A Simple Solution to a Complex Problem (with Ruth Mason (Virginia)) at UCLA today as part of its Tax Policy and Public Finance Colloquium Series hosted by Jason Oh and Kirk Stark:

Numerous tax discrimination cases are working their way through the judicial systems of the European Union and the United States. Prior cases, which have forced many states to change long-standing tax policies, have attracted intense criticism from commentators and even jurists for being unprincipled and illogical. In a series of articles we have written over the last several years, we have developed a straight-forward approach to tax discrimination that courts can use to resolve tax discrimination claims and that states can use to design and implement tax systems that raise revenue without discriminating.

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March 1, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

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

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

Dagan: International Tax Policy — Between Competition And Cooperation

International TaxTsilly Dagan (Bar-Ilan University, Israel), International Tax Policy: Between Competition and Cooperation (Cambridge University Press 2017):

Bringing a unique voice to international taxation, this book argues against the conventional support of multilateral co-operation in favour of structured competition as a way to promote both justice and efficiency in international tax policy. Tsilly Dagan analyses international taxation as a decentralised market, where governments have increasingly become strategic actors. While many of the challenges of the current international tax regime derive from this decentralised competitive structure, Dagan argues that curtailing competition through centralisation is not necessarily the answer. Conversely, competition—if properly calibrated and notwithstanding its dubious reputation—is conducive, rather than detrimental, to both efficiency and global justice. International Tax Policy begins with the basic normative goals of income taxation, explaining how competition transforms them and analysing the strategic game states play on the bilateral and multilateral level. It then considers the costs and benefits of co-operation and competition in terms of efficiency and justice.

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March 1, 2018 in Book Club, Scholarship, Tax | Permalink | Comments (0)

Hasen: Rules, Standards And Detection

David Hasen (Florida), Rules, Standards and Detection:

Regulators can adjust penalties to compensate for incomplete monitoring of rule-governed regulated parties, but these adjustments often are unavailable when regulated parties are subject to legal standards. Incomplete monitoring consequently invites greater noncompliance under standards than under rules. A similar logic may apply to the use of complicated rules instead of simple ones.

This paper develops a model that clarifies some of the specific tradeoffs that regulators face in designing standards regimes under incomplete monitoring.

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March 1, 2018 in Scholarship, Tax | Permalink | Comments (0)

Wednesday, February 28, 2018

Prichard Presents China, International Taxation And The Global System Today at Toronto

MunkWilson Prichard (Toronto) presents China, International Taxation and the Global System (with Martin Hearson (London School of Economics)) at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series:

There has been mounting interest in China’s role in shaping global economic governance, but conclusions have been guided by a small set of empirical cases. We offer an analysis of Chinese engagement with the reform of international tax rules, in order to shed light on the broader factors shaping Chinese global governance strategies. We argue that China has pursued a dual track strategy: it has adopted a cooperative and moderately reformist position at the OECD, but has pushed a potentially more radical agenda at the UN, and through domestic policy positions that quietly – but substantially — challenge OECD conventions. In doing so if has rhetorically signalled a desire to represent broader developing country interests, yet in practice appears guided primarily by narrower national interests, which often — but not always — overlap with those of developing countries more broadly.

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February 28, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

McMahon Presents Tax As Part Of A Broken Budget Process Today At Indiana

McMahonStephanie McMahon (Cincinnati) presents Tax as Part of a Broken Budget: Good Taxes are Good Cause Enough at Indiana today as part of its Faculty Workshop Series:

The federal budget is a myth.  Despite being a myth, Congress uses the budget to limit its choices by linking its revenue-raising and spending powers and to threaten itself and the public with the federal debt ceiling.  Through its self-imposed limits, Congress puts tremendous pressure on how it defines its budget.  The budget process generally assumes its tax provisions will raise revenue when the law becomes effective.  However, many tax provisions are not self-executing.  The Treasury Department and the IRS as a bureau of the department must create guidance to operationalize the Internal Revenue Code.  Consequently, limiting the production of tax guidance that implements tax statutes is problematic because their projected revenue is used to balance the budget.Nevertheless, guidance is under attack on the grounds that its issuance fails to comply with the Administrative Procedure Act (APA). 

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February 28, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Aprill: Tax Status of Public Universities

Ellen P. Aprill (Loyola-L.A.), Tax Status of Public Universities, 154 Tax Notes 539 (Jan. 22, 2018):

New section 4960 imposes a 20% excise tax on certain organizations not subject to income tax if any their five highest paid employees have annual compensation above $1 million. (It also imposes the tax on “excess parachute payments,” as defined in the statute.) In December, 2017, I wrote a blog post arguing that, whatever the Congressional intent, the language of the statute did not reach states and their political subdivisions or their integral parts. The blog post emphasized state universities, although the reasoning applied to other governmental entities as well. Professor Douglas Kahn of University of Michigan took issue with my position on the basis that the new section does apply to section 501(c)(3) organizations. This piece is my response to him.

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February 28, 2018 in Scholarship, Tax | Permalink | Comments (1)

NY Times: Trump’s Tax Cuts In Hand, Companies Spend More On Themselves Than On Wages

New York Times, Trump’s Tax Cuts in Hand, Companies Spend More on Themselves Than on Wages:

President Trump promised that his tax cut would encourage companies to invest in factories, workers and wages, setting off a spending spree that would reinvigorate the American economy.

Companies have announced plans for some of those investments. But so far, companies are using much of the money for something with a more narrow benefit: buying their own shares.

Those so-called buybacks are good for shareholders, including the senior executives who tend to be big owners of their companies’ stock. A company purchasing its own shares is a time-tested way to bolster its stock price.

But the purchases can come at the expense of investments in things like hiring, research and development and building new plants — the sort of investments that directly help the overall economy. The buybacks are also most likely to worsen economic inequality because the benefits of stocks purchases flow disproportionately to the richest Americans. ...

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February 28, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (2)

2017 IFA International Tax Student Writing Award; Call For Entrants In 2018 Competition

IFA Logo (2015)The winner of the International Fiscal Association's 2017 International Tax Student Writing Competition is David Maranjan (Virgina), What’s in a Name? XILINX, ALTERA, and Why Using “Arm’s Length” as a Catchall is Causing Problems for Treasury,  47 BNA Tax Mgmt. Int'l J. ___ (2018)
Faculty Sponsor:  Ruth Mason

2018 IFA International Tax Student Writing Competition:
Subject: Any topic relating to U.S. taxation of income from international activities, including taxation under U.S. tax treaties.
Open to: All students during the 2017-18 academic year pursuing a graduate degree. Any appropriate papers written in fall 2017 or spring and summer 2018.
Submission Deadline:  September 30, 2018.
Prize:  $2,000 cash, plus expenses-paid invitation to the IFA USA Branch Annual Meeting in Feb 2019.

Here are the recent winners:

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February 28, 2018 in Scholarship, Tax, Teaching | Permalink | Comments (0)

Tuesday, February 27, 2018

Goldin Presents Complexity And Take-Up Of The Earned Income Tax Credit Today At NYU

Goldin (2017)Jacob Goldin (Stanford) presents Tax Benefit Complexity and Take-Up of the Earned Income Tax Credit at NYU today as part of its Tax Policy Colloquium Series hosted by Lily Batchelder and Daniel Shaviro:

Tax benefits like the Earned Income Tax Credit (EITC) represent an important source of income to their recipients, but millions of those who are eligible to claim tax benefits fail to do so. One possible explanation is that the rules governing most tax benefits are extraordinarily complex. I consider efforts to increase tax benefit take-up in light of this complexity. A key fact in thinking about this issue is that the vast majority of tax filers today prepare their taxes with assisted preparation methods (APMs) like software or professional assistance. Because APMs eliminate most of the barriers to claiming tax benefits for which one is eligible, I ague that efforts to increase benefit take-up should focus on inducing benefit-eligible individuals to file a tax return using an APM. In contrast, efforts aimed at increasing awareness of a benefit (of the type widely employed by governments and nonprofits) are less likely to be successful, except to the extent they themselves induce an increase in tax filing.

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February 27, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (1)

Mathur Presents The Elasticity Of Taxable Income Today At Georgetown

Mathur (2018)Aparna Mathur (American Enterprise Institute), The Elasticity of Taxable Income in the Presence of Intertemporal Income Shifting (with Aspen Gorry (Clemson Business School) & R. Glenn Hubbard (Dean, Columbia Business School)) at Georgetown today as part of its Tax Law and Public Finance Workshop Series hosted by Lilian Faulhaber and Itai Grinberg:

Knowing the elasticity of taxable income (ETI) is crucial for understanding the effects of taxation on taxpayer behavior and consequently on tax revenues. Previous research has found that high-income individuals are most sensitive to tax policy changes. However, these individuals have more opportunity to defer income to future tax bases by altering the composition of their compensation. This paper considers the taxable income elasticity when individuals can shift income across tax bases and thereby defer taxation. We decompose the elasticity of taxable income into a real response as well as an income shifting response. We measure the tax rate on deferred income by the expected tax gain from deferring income using stock options as developed by Hall and Liebman (2000). Our results demonstrate that income shifting is an important component of previous estimates of the ETI. Because shifted income is taxed at future dates, this income shifting decreases the welfare loss from personal income taxation associated with previous estimates.

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February 27, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Mason Presents Why State Aid Needs Discrimination At Houston

Mason (2016)Ruth Mason (Virginia) presented Why State Aid Needs Discrimination at Houston yesterday as part of its Distinguished Speaker Series:

In August 2016, the European Union’s (EU) Commission dropped a bombshell: it would require Ireland to collect more than $14.5 billion in back taxes from Apple under anti-subsidy rules that most American tax lawyers had never even heard of—the state-aid rules. Suspicions that certain EU Member States colluded with large multinationals to help them evade other states taxes suggests the need for a supra-national authority that could curb harmful state tax practices.

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February 27, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Borden: Choice-Of-Entity Decisions Under The New Tax Act

Bradley T. Borden (Brooklyn), Choice-of-Entity Decisions Under the New Tax Act:

This short article illustrates how the 2017 Tax Cuts and Jobs Act taxes $500,000 of ordinary income depending upon whether it is earned by a corporation, a passthrough as qualified business income (QBI), or a passthrough as income from a specified service trade or business (SSTB). The article shows that the effective tax rate on QBI, which qualifies for the 20% QBI deduction, will rival the effective tax rate on income earned and distributed by a corporation. Tax on income from an SSBT will be higher than the same income from a QBI, but, if the owner of the SSBT plans to withdraw most of the earnings from the SSTB, a passthrough entity will often provide a lower effective tax rate than a corporation. The choice between passthrough entity and corporation will be affected by the amount of income that the owner withdraws from the business and the amount of income the business generates. Lower-income SSTBs may qualify for the QBI deduction, reducing the effective tax rate on passthrough income, and enhancing the attractiveness of the passthrough entity. Conversely, the effective tax rate on passthrough income increases as business income moves into the millions of dollars, triggering the application of the highest marginal rates. The choice-of-entity preference for businesses with that level of income may move toward corporations, especially if the owners do not withdraw all of the business’s income.

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February 27, 2018 in Scholarship, Tax | Permalink | Comments (1)

NY Times: Well-Heeled Investors Reap The Republican Tax Cut Bonanza

New York Times editorial, Well-Heeled Investors Reap the Republican Tax Cut Bonanza:

After President Trump signed the Republican tax cut into law, companies put out cheery announcements that they were giving workers bonuses because of their expected windfalls from the tax reductions. The president and Republican lawmakers quickly held up these news releases as vindication for their argument that cutting the top federal corporate tax rate to 21 percent, from 35 percent, would boost workers’ incomes even as it added $1.5 trillion to the debt that future generations would have to pay off.

Now corporate announcements and analyst reports confirm what honest observers always said — this claim is pure fantasy. As executives tell investors what they intend to do with their tax savings and their spending plans are tabulated into neat charts and graphs, the reports jibe with what most experts said would happen: Companies are rewarding their stockholders.

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February 27, 2018 in Tax | Permalink | Comments (2)

WSJ Op-Ed: The Story Behind The IRS’s Exemption From Regulatory Oversight,

Wall Street Journal op-ed:  The Story Behind the IRS’s Exemption From Oversight, by Susan E. Dudley & Sally Katzen:

Americans may differ on whether we have too much or too little regulation, but we should all agree that regulations should be transparent, accountable and based on a reasoned analysis that they are necessary and appropriate. The Treasury Department, especially the Internal Revenue Service, appears to have fallen short of these expectations, by expanding a narrow exemption to evade the good-government requirements that generally apply to federal regulators. As a result, Treasury risks imposing high-impact regulations that are neither accountable nor transparent.

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February 27, 2018 in Tax | Permalink | Comments (0)

Monday, February 26, 2018

Glogower Presents Taxing Inequality Today At BYU

Glogower (2016)Ari Glogower (Ohio State) presents Taxing Inequality at BYU today as part of its Tax Policy Colloquium Series hosted by Cliff Fleming and Gladriel Shobe:

Economic inequality in the United States is now approaching historic levels last seen in the years leading up to the Great Depression. Scholars have long argued that the federal income tax alone cannot curtail rising inequality and that we should look beyond the income tax to a wealth tax. Taxing wealth also faces two central and resilient objections in the literature: A wealth tax penalizes savings and overlaps with a tax on capital income.

This Article moves beyond this stalemate to redefine the role of wealth in a progressive tax system. The argument proceeds in three main parts. The Article first interrogates the justifications in the literature for a wealth tax and introduces a new justification grounded in the relative economic power theory which explains how inequality generates social and political harm. This theory formalizes the problem of inequality and has specific implications for the way that economic inequality should be measured and constrained. In particular, this theory implies that economic inequality should be measured by differences in economic spending power during the taxing period.

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February 26, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

NY Times: Washington’s Fight Over Taxes Is Only Just Beginning

New York Times, Washington’s Fight Over Taxes Is Only Beginning:

Never mind that “once in a generation” tax bill that just passed last year. Congress is headed for years more of big fights over taxes, particularly those for individuals.

That tax battle is a byproduct of America’s polarized political climate and of the go-it-alone choices Republicans made to speed the 2017 law through Congress in less than two months.

It is already complicating tax planning for companies and workers around the country, particularly in high-tax states like New York, Maryland and California, where lawmakers are actively pursuing workarounds for some provisions of the new federal law that limit state and local income and property tax deductions.

It’s only going to get messier.

“This legal regime is very unstable; Congress has created many, many problems,” both in the substance of the bill and the exclusion of Democrats in enacting it, said Rebecca Kysar, a professor and tax expert at Brooklyn Law School. “All of those dynamics are going to make for a very uncertain landscape going forward.” ...

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February 26, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)

Lesson From The Tax Court: Underwater Debtors

Tax Court (2017)Last week’s lesson was about the tax consequences to the borrower when the lender cancels the debt. This week’s case looks at the other side of the transaction to teach a lesson about what constitutes debt. Section 166 allows a lender who gives up trying to get back borrowed money to deduct the bad debt, effectively treating current income as a return of the lost capital. Similarly, a lender who sells debt to a third party for less than basis can calculate a loss under §1001 and may be able to treat that loss as a long-term capital loss.

But to have either a bad debt under §166 or a loss under §1001, there must be a “debt” in the first place. That is the lesson from last week’s case of Michael J. Burke and Jane S. Burke v. Commissioner, T.C. Memo. 2018-18. There, the taxpayer attempted to take both long-term and short-term capital losses in 2010 and 2011 through a mix of §166 deductions and claimed capital losses from sale of debt at less than basis. The alleged bad debts arose in connection with a scuba diving business in Belize. On audit, the IRS disallowed the deductions, creating a deficiency in taxes totaling some $444,000. The dispute was whether the Burkes had “debt” to lose. Judge Holmes’ opinion does a deep dive into the meaning of “debt” and shows why the taxpayer’s arguments here were all wet. If you think I’ve gone overboard in my water metaphors, Judge Holmes’ opinion is drenched with them. Makes for a splashy opinion.

More below the fold.

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February 26, 2018 in Bryan Camp, New Cases, Tax, Tax Practice And Procedure | Permalink | Comments (0)

Former Davis Polk Tax Partner Dana Trier Quits Position As Deputy Assistant Secretary For Tax Policy

Wall Street Journal, Treasury Official, Critical of Parts of Tax Law, Quits:

A Treasury Department official deeply involved in implementing the new tax law left the government unexpectedly this week.

Dana Trier, a retired New York attorney praised by fellow tax lawyers in both parties, was a deputy assistant secretary for tax policy, putting him near the center of administration decision-making about how to write the crucial and highly technical rules stemming from the new Tax Cuts and Jobs Act.

Accountants, tax lawyers and businesses have been watching his actions and speeches closely for clues on how the Trump Administration will enforce complex new deductions for pass-through businesses, restrictions on business interest deductions and other matters. ...

Tax-focused publications had previously written about some of Mr. Trier’s remarks that were critical of parts of the new tax law, including a speech earlier this month in San Diego at a conference sponsored by the American Bar Association’s Tax Section. ... In San Diego, Mr. Trier had said people looking at pieces of the new law sometimes asked him whether lawmakers could have reasonably meant to write it the way they did. “We’re going to have trouble with about half the legislation if we apply that standard,” said Mr. Trier, whose name rhymes with clear.

Late Friday, Mr. Trier, 69 years old, said he and Assistant Secretary David Kautter agreed that he should leave. “Between these public comments and the constant friction with the bureaucratic elements of the government, I really just think…it was time to go,” Mr. Trier said. “I have enough of a big ego to think that they’ve lost something when they’ve lost me, but I think they can do it.”

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February 26, 2018 in IRS News, Tax | Permalink | Comments (0)

TaxProf Blog Weekend Roundup

Sunday, February 25, 2018

New Tax Law Ignites White House Power Struggle

Treasury OMBFollowing up on last week's post, Tax Reform and IRS Resistance:  Politico, Tax Law Ignites White House Power Struggle:

A political battle over the fate of hundreds of regulations and other guidance for the new tax law may soon land on President Donald Trump’s desk, forcing him to choose between two of his favorite Cabinet members.

At stake is who has ultimate authority to shape the nuances of the tax cuts and other rules as part of the $1.5 trillion Republican tax overhaul: Treasury Secretary Steven Mnuchin and the IRS have that power now, but White House budget director Mick Mulvaney and some of his GOP allies in Congress want the Office of Management and Budget to have the final say.

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February 25, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)

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.

  1. [32,284 Downloads]  The Games They Will Play: An Update on the Conference Committee Tax Bill, by Ari Glogower (Ohio State), David Kamin (NYU), Rebecca Kysar (Brooklyn) & Darien Shanske (UC-Davis) et al.
  2. [1899 Downloads]  Understanding the Tax Cuts and Jobs Act, by Sam Donaldson (Georgia State)
  3. [985 Downloads]  Federal Income Tax Treatment of Charitable Contributions Entitling Donor to a State Tax Credit, by Joseph Bankman (Stanford), David Gamage (Indiana), Jacob Goldin (Stanford) & Daniel Hemel (Chicago) et al.
  4. [679 Downloads]  Is New Code Section 199A Really Going to Turn Us All into Independent Contractors?, by Shu-Yi Oei (Boston College) & Diane M. Ring (Boston College)
  5. [447 Downloads]  The Tax Lifecycle Of A Single Member LLC, by F. Philip Manns Jr. (Liberty) & Timothy M. Todd (Liberty)

February 25, 2018 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

Saturday, February 24, 2018

This Week's Ten Most Popular TaxProf Blog Posts

WSJ: Pass-Through Businesses Are Rethinking Their Status In Wake Of The New Tax Law

WSJWall Street Journal, Pass-Through Businesses Are Rethinking Their Status in Wake of Tax Law:

As business owners pore through the new tax law, many are asking themselves a fundamental question: Will changing how their company is structured cut their tax bills?

“This is one of the most pressing issues for taxpayers and business owners,” said Mark Everson, vice chairman of tax-consulting firm Alliantgroup LP. “They are looking carefully now at how they are legally organized.” 

For many entrepreneurs, the big question is whether to operate as a C corporation, which pays its own taxes to the Internal Revenue Service, or as a pass-through company, which pays tax through individual rather than corporate returns. Pass-through businesses include S corporations, sole proprietorships and limited liability companies.

The clock is ticking. Many business owners have until March 15 to make an election that would be retroactive to the beginning of 2018.

The rethinking of corporate structures is one byproduct of the new tax bill, which cuts the corporate tax rate to 21%, down from a top rate of 35%, though owners pay a second tax on profits distributed as dividends. ..,

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February 24, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Friday, February 23, 2018

Lederman Presents Information Matters In Tax Enforcement Today At Florida

Lederman (2018)Leandra Lederman (Indiana) presents Information Matters in Tax Enforcement at Florida today as part of its Graduate Tax Speaker Series:

Most legal and economics scholars recognize that the government needs information about taxpayers’ transactions in order to determine whether their reporting is honest, and that third-party reporting helps the government obtain that information. Yet, a recent paper by Professor Wei Cui [Taxation Without Information: The Institutional Foundations of Modern Tax Collection] asserts that “modern governments can practice ‘taxation without information.’” Cui’s argument rests on two premises: (1) “giving governments effective access to taxpayer information through third parties does not explain the success of modern tax administration” because, he argues, other important taxes, such as the value added tax (VAT), do not involve information reporting; and (2) modern tax administration succeeds because business firms are “sites of social cooperation under the rule of law,” fostering compliance. As this Essay argues, the literature demonstrates that Cui is wrong on both points.

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February 23, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Weekly SSRN Tax Article Review And Roundup: Glogower Reviews Aprill & Hemel's A Byrd's Eye View Of The Tax Legislative Process

This week, Ari Glogower (Ohio State) reviews a new work by Ellen P. Aprill (Loyola-LA) and Daniel Hemel (Chicago), The Tax Legislative Process: A Byrd's Eye View, 81 Law & Contemp. Probs. ___ (2018).

Glogower (2016)Ellen Aprill and Daniel Hemel’s timely and enlightening new essay described the effect of the Byrd Rule on tax legislation and policy since its adoption in 1985. Named for former Senator Robert Byrd (D-WV), the rule limits the scope of legislation that can be passed in the Senate by a simple majority through the budget reconciliation process.

The 1974 Congressional Budget Act allowed for the reconciliation process as a way for Congress to pass revenue-related legislation and avoid the threat of a “filibuster”—and specifically to avoid the supermajority requirement (now 60 votes) for cloture ending debate on a measure in the Senate. The Byrd Rule, in turn, limits the ability to pass additional measures through this process that are not revenue-related. In particular, the rule precludes provisions that are “extraneous” to the reconciliation instructions as specified in a budget resolution that must be passed first authorizing an increase in outlays or revenues up to a specified amount over a specified budget window.

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February 23, 2018 in Ari Glogower, Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Tax Policy In The Trump Administration

Charleston Law Students Win 7th Consecutive National Tax Moot Court Competition

2018 National Tax Moot CourtPost and Courier, Charleston School of Law Moot Court Team Defends its Dynasty With 7th National Title:

To the uninitiated, tax moot court might sound like a bit of a snoozefest.

Unlike the academic marathon of a spelling bee or the sassy courtroom repartee of "Judge Judy," deliberations over the finer points of U.S. tax code do not make for a lively spectacle.

But to the Charleston School of Law, the 2018 National Tax Moot Court Competition in St. Pete Beach, Florida, was a chance to defend a dynasty. The school's Moot Court Board had won the championship six years in a row leading up to the event on Feb. 1-3, and its team was ready to notch a seventh national title. ...

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February 23, 2018 in Legal Education, Tax, Teaching | Permalink | Comments (0)

Thursday, February 22, 2018

McCormack Presents America's (D)evolving Childcare Tax Laws Today At Duke

McCormackShannon Weeks McCormack (University of Washington) presents America's (D)evolving Childcare Tax Laws at Duke today as part of its Tax Policy Workshop Series hosted by Lawrence Zelenak:

Proponents have touted the ability of the Tax Cuts and Jobs Act (the TCJA) — enacted in the twilight of 2017 — to help American working families. But while the TCJA expanded some benefits available to parents with dependent children, these “parental tax benefits” may be claimed regardless of whether or to what extent childcare costs are incurred to work outside the home. To help working parents with these costs (which are often their largest expense), Congress might have turned to two other mechanisms in the tax law — the child and dependent care credit, and the “dependent care exclusion. While these “childcare tax benefits” are only available to working parents that pay for childcare, stringent limitations have kept many from recovering anything near their actual costs, particularly in the critical years before children reach school-age. As a result, the Code has been taxing families with different childcare needs inequitably. But the TCJA left these “childcare tax laws” untouched and thus did nothing to address this problem. By exploring critical junctures in their development, this Article seeks to understand how America’s tax laws have (d)evolved in this manner and, in doing so, situates some of TCJA’s so-called reforms into their historical context.

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February 22, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Pratt Presents Learning To Live Without Form 1040 Today At UCLA

Pratt (2017)Katherine Pratt (Loyola-L.A.) presents Learning to Live Without Form 1040 at UCLA today as part of its Tax Policy and Public Finance Colloquium Series hosted by Jason Oh and Kirk Stark:

This Article explores the functions served by the annual mass filing of individual income tax returns on Form 1040 and considers the institutional design opportunities presented by the proposed conversion of the “mass” income tax into a “class” income tax. Focusing on Michael Graetz’s Competitive Tax Plan, Part I briefly summarizes proposals that would narrow the scope of the income tax and significantly reduce the number of Form 1040 tax returns filed annually. The prospect of eliminating so many income tax returns raises the question of whether a reduction in Form 1040 filings could have unexpected consequences.

Part II asks: aside from raising revenue, what functions does the mass filing of Form 1040 serve? Larry Zelenak posits certain functions served by the mass filing of Form 1040, including the “warm glow” “fiscal citizenship” function. This Article addresses additional functions that the mass filing of Form 1040 serves.

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February 22, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

WSJ: New BEAT Tax Could Eliminate Benefit From Lower Corporate Tax Rate For Some Foreign Firms

WSJ 2Wall Street Journal, BEAT UP? U.S. Tax Provision May Sting Foreign Firms:

Executives around the world have embraced the overhaul’s big reduction in the federal corporate-tax rate—from 35% to 21%. Less-well-known provisions in the new code, however, could hurt some companies based outside the U.S. and doing business in the country.

One of the biggest potential threats is the base-erosion and anti-abuse tax. Dubbed BEAT, the levy could damp—or even completely offset—any gains that foreign multinationals such as SAP might otherwise expect from the reduction in the U.S. tax rate.

Here is how BEAT is designed to work: If a company generates more than $500 million in annual revenue in the U.S., and its American units make above a specified level of tax-deductible payments to related companies overseas, those units must pay a minimum tax on their U.S. profit after adding back in certain types of deductions. The minimum rate is 5% in 2018, but rises to 10% in 2019 and 12.5% in 2026.

Drafters of the tax law say the provision was meant to discourage companies from inappropriately channeling profit generated in the U.S. to lower-tax regimes.

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February 22, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)