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Wednesday, October 8, 2014

Schizer: The Influence of Tax on Managerial Agency Costs

David Schizer (Columbia), Tax and Corporate Governance: The Influence of Tax on Managerial Agency Costs:

OxfordThis chapter of the Oxford Handbook on Corporate Law and Governance canvasses a broad range of ways that tax influences managerial agency costs, focusing especially on the United States. In doing so, this chapter has two goals. The first is to help corporate law experts target managerial agency costs more effectively. The analysis here flags when tax is likely to exacerbate agency costs, and when it is likely to mitigate them. Armed with this information, corporate law experts have a better sense of how vigorous a contractual or corporate law response they need. In some cases, a change in the tax law may also be justified. This chapter’s second goal, then, is to enhance our understanding of tax rules, shedding light on a set of welfare effects that are important but understudied. After all, tax policy is more likely to enhance welfare if policymakers weigh all possible welfare effects, including managerial agency costs.

Overall, the U.S. tax system’s record in influencing agency costs is not encouraging. After all, a tax system’s priority is not to reduce agency costs, but to raise revenue efficiently and fairly. Government tax experts do not usually have the expertise or motivation to tackle corporate governance problems. Tax also is a poor fit because it typically applies mandatorily and uniformly, while responses to agency cost should be molded to the context. For example, promoting stock options or leverage will be valuable in some settings, but disastrous in others. There also are political hurdles to be overcome. Accordingly, when tax rules target agency costs, the results often are poorly tailored or even counterproductive.

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

NYU Seeks to Hire Acting Assistant Professor of Tax Law

NYU Tax LogoThe NYU School of Law Graduate Tax Program is seeking applicants for its Acting Assistant Professor of Tax Law Program for the 2015-16 academic year, commencing August 1, 2015.

For over fifty years, the NYU Acting Assistant Professor of Tax Law (“Tax AAP”) program has launched the careers of dozens of tax academics.  Tax AAPs show promise as legal scholars and have a strong interest in teaching. They serve on a full-time, non-tenure track basis at the Law School for two academic years. At the start of their second year, Tax AAPs are expected to seek a tenure-track position on the law school academic job market.

While in residence at the Law School, Tax AAPs devote a substantial amount of time to their scholarship and begin to develop their research agendas. Tax AAPs teach one or two courses in the Graduate Tax Program each semester. Each Tax AAP also either serves an Assistant Editor of the Tax Law Review, the nation’s top tax policy journal, or works with the International Tax Program, the leading graduate tax program for non-U.S. lawyers.

How to Apply

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October 8, 2014 in Tax, Tax Prof Moves | Permalink | Comments (0)

ATPI Hosts Conference on Taxation and Migration

ATPI Logo (2015)The American Tax Policy Institute hosts a conference on Taxation and Migration organized by Reuven Avi-Yonah (Michigan) and Joel Slemrod (Michigan) in Washington, D.C. (Skadden, Arps, Slate, Meagher & Flom, 1441 New York Avenue, N.W.) on October 17 (free registration here):

The conference assesses the effects of taxation on the migration across national and state boundaries of individuals at various stages of their lives. It will also evaluate whether corporate migrations (such as "inversions") involve migration of individuals, and what are the tax policy implications for the US and other jurisdictions. 

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

Afield: Harnessing Taxpayer Choices to Improve Educational Quality

W. Edward Afield III (Ave Maria), Winning the Crowd: Harnessing Taxpayer Choices to Improve Educational Quality, 63 Cath. U. L. Rev. 297 (2014):

This article presents a novel approach to the debate over the best way to improve educational policy. Building off of research showing that decisions made by groups can be superior to those made by even the smartest members of those groups, this piece shows how this concept of a "wise crowd" can be applied to improve outcomes even in a complex policy debate like educational policy. Educational policy currently exhibits a host of competing ideas for the best mechanism to improve student outcomes. These competing ideas can be seen in the wide variety of schools that exist and that compete for resources to implement their approaches. Public schools, charter schools, magnet schools, International Baccalaureate programs, secular private schools, religious private schools, home schooling — all of these and more offer unique approaches to education. Even within these types of schools, different educational teaching philosophies abound. Although some schools unquestionably have better outcomes for students than others, there is not universal agreement about how to measure the quality of any particular school because of the host of factors involved in educating a student. In other words, some schools are likely better than others, but separating good schools from weak ones is difficult.

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

Winchester: Obama's Gift to the Rich: A Permanent Payroll Tax Holiday

Richard Winchester (Thomas Jefferson),  Obama's Gift to the Rich: A Permanent Payroll Tax Holiday, 48 Val. U. L. Rev. 83 (2013):

President Obama made a concerted effort to enact tax legislation that benefited middle and lower income individuals over the rich. The temporary payroll tax cut in effect during 2011 and 2012 is a case in point. However, many high-income individuals enjoyed an even greater measure of payroll tax relief as a result of legislation that he signed. But instead of being granted directly under the terms of a bill, this relief was made possible because the tax legislation that he signed perpetuated what had been only a temporary incentive for individuals to avoid the payroll tax entirely when they work for a corporation that they also own or otherwise control. Simply put, these individuals can take a payroll tax holiday by substituting a dividend for any wages they could otherwise receive. What’s more, this tax dodge operates in a way that favors the rich far more than anyone else. This tax dodge would have died after Mr. Obama’s second year in office. However, the legislation he signed gave it perpetual life, reinforcing the need to address the multiple defects in the nation’s employment tax system.

October 8, 2014 in Scholarship, Tax | Permalink | Comments (1)

The IRS Scandal, Day 517

IRS Logo 2Washington Post (The Volokh Conspiracy):  Lawsuit Based on Alleged Government Targeting of Tea Party Group Organizer Can Go Forward, by Eugene Volokh (UCLA):

From Zherka v. Ryan, 2014 WL 4928956 (S.D.N.Y. Sept. 30, 2014):

Plaintiff Selim Zherka filed this … action claiming that employees of the Internal Revenue Service hindered his application for tax exempt status and initiated an investigation against him as part of a broader effort to penalize members of the Tea Party for their political activities….

Beginning in 2009, plaintiff published newspaper articles and held rallies criticizing government officials for political corruption and “confiscatory tax policies.” Plaintiff organized and supported the creation of the Tea Party, a political party that received extensive publicity in the news media. At some point, plaintiff sought tax-exempt status for an organization he and others used primarily for educational purposes. However, plaintiff claims that defendant Lois Lerner …, an IRS employee, subjected his application to an inordinately high level of scrutiny, forcing him to abandon his efforts to obtain tax-exempt status. [The case against Lois Lerner was dismissed because “Plaintiff has not satisfied its burden of showing that [he] served defendant Lerner with a copy of the summons and complaint.” — EV]

Plaintiff alleges that in 2011, agent Ryan of the Federal Bureau of Investigation … and agent Ashcroft … of the IRS began an investigation into his commercial real estate dealings. Plaintiff claims these defendants issued over 75 subpoenas to his business associates, threatening them with criminal prosecution should they withhold information incriminating plaintiff. Plaintiff alleges that as a result, many of these business associates terminated their relationship with him out of a fear of “running asunder of federal agencies.” He asserts that defendants’ conduct was part of a broader government strategy to penalize Tea Party members for their political speech.

Plaintiff claims to have lost business as a result of the ongoing investigation. Moreover, he claims that defendants’ actions have chilled his political activities, damaged his reputation, and caused emotional injuries….

Plaintiff alleges First Amendment retaliation …. To state a claim for First Amendment retaliation, a plaintiff must show: (1) that the speech or conduct at issue was protected, (2) that the defendant took adverse action against the plaintiff, and (3) that there was a causal connection between the protected speech and the adverse action.” …

[P]laintiff alleges that defendants intentionally targeted him for investigation because of his active membership in a new political party. The First Amended Complaint indicates that defendants initiated their broad investigation solely against plaintiff because of his political efforts, and did not pursue similar investigations against apolitical businesses and taxpayers. Plaintiff’s activities centered on advocating for a reduction in local, state, and federal tax levies. Plaintiff claims that as a result of his political activities, defendants issued over 75 subpoenas to his business associates, and contacted dozens of them individually in a search for incriminating information. Defendants’ alleged conduct appears to have significantly damaged plaintiff’s business prospects and “curtailed his public advocacy.”

Plaintiff has made a plausible showing on his First Amendment and equal protection claims. His speech, which is directed at reforming government spending, is clearly protected. He has alleged facts showing that defendants targeted him for a wide-ranging investigation because of this speech, and that he was treated differently than other taxpayers and businessmen who did not espouse anti-taxation beliefs. Thus, plaintiff has pleaded sufficient facts to state a plausible claim for relief on his First Amendment [claim] ….

Plaintiff [also] alleges that defendants’ conduct is so shocking as to amount to a violation of his substantive due process rights…. Only “the most egregious official conduct” meets this threshold.

The question of whether conduct is shocking in a constitutional sense is highly context specific. ...

Here, plaintiff alleges that he has been subjected to more than two years of investigation by defendants. He claims that defendants have threatened his business associates with criminal prosecution in order to secure their cooperation in the investigation. Moreover, he claims that defendants have inquired into his political activities and political affiliations, demonstrating a motivation to retaliate against him for his political speech. Plaintiff claims that defendants’ conduct has severely damaged his reputation and harmed his business relationships.

These allegations are disturbing and sufficiently shocking to allow plaintiff’s claim to go forward. While defendants did not subject plaintiff to forced-stomach pumping or other physical deprivations, they have allegedly investigated him for nearly two years based solely on his political message. Defendants’ alleged conduct appears to have jeopardized many if not most of plaintiff’s business relationships, causing him dramatic and permanent harm. Given plaintiff’s low burden at this stage in the litigation, he has alleged facts egregious enough to shock the conscience in a constitutional sense….

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

Tuesday, October 7, 2014

Shackelford Presents The Taxation of Foreign Investors in U.S. REITs Today at Columbia

ShackelfordDouglas Schackelford (North Carolina) presents Taxes, Investors, and Managers: Exploring the Taxation of Foreign Investors in U.S. REITs (with Margot Howard (North Carolina) & Katherine Pancak (Connecticut)) at Columbia today as part of its Tax Policy Colloquium Series hosted by Alex RaskolnikovDavid Schizer, and Wojciech Kopczuk:

Exploiting a 2004 reduction in a unique capital gains withholding tax for foreign investors in U.S. REITs, this paper explores both the sensitivity of real estate investors to changes in their own taxes and the reaction of real estate managers to changes in their investors’ taxes. We find that both foreign investors and REIT managers responded to the tax change. This is consistent with taxes both restricting the flow of foreign capital into U.S. REITs and affecting the management of their real estate properties. To our knowledge, this is the first paper documenting that U.S. managers change their U.S. operations in response to the tax positions of foreign investors. This work should spur further study of the interplay between real estate and income taxes, the role of taxes on foreign portfolio investment, and the role of taxes on real managerial decisions. It also should aid policymakers who are considering further relaxing the discriminatory tax treatment for foreign investors in U.S. real estate.

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

IRS Allows Bigger Tax Break for Donations to Needy College Students Than for Donations to Colleges

San Francisco Chronicle, Huge Tax Break for Donating to California College Students:

CalCalifornia has come up with a way to let the federal government help fund an increase the state’s Cal Grant B program, which provides money for books and living expenses to low-income college students. The program could expand the annual grant from $1,648 per student this year to as much as $3,000 to $5,000 over the next three years. ...

Money will come from a new College Access Tax Credit Fund. Individuals or companies that contribute to the fund will get a generous state tax credit equal to 60 percent of their donation this year, 55 percent next year and 50 percent in 2016. A credit is a dollar-for-dollar reduction in one’s tax bill, so a $10,000 donation to the fund in 2014 would reduce state taxes by $6,000.

Taxpayers can also deduct the donation as a charitable contribution on their federal, but not state, income taxes. ... Unlike a credit, a deduction reduces income before taxes are calculated, so the value of the federal deduction depends on the donor’s tax rate. ...

The tax deduction will benefit people who are subject to the alternative minimum tax more than people who don’t pay AMT. That’s because charitable contributions are deductible under the AMT, but state income taxes are not. People who are not subject to AMT can deduct both. ...

This outcome “may sound too good to be true,” UCLA law Professor Kirk Stark wrote in an April 2013 article in Tax Notes [Capturing Federal Dollars With State Charitable Tax Credits, 139 Tax Notes 53 (Apr. 1, 2013)]. However, “recent legal guidance from the IRS Office of Chief Counsel [ILM 201105010 (Oct. 27, 2010)] appears to support that strategy. Asked to opine on the effects of a state income tax credit for charitable donations, the chief counsel in 2010 concluded that the taxpayer was allowed to deduct the full amount of her charitable contribution to a state agency even though she received a state income tax credit for some (unspecified) percentage of that amount.”

The state is relying on that chief counsel memorandum to support the federal tax deduction for the contribution to the college access fund.

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October 7, 2014 in Tax | Permalink | Comments (0)

Gamage: On Double-Distortion Arguments, Distribution Policy, and the Optimal Choice of Tax Instruments

David Gamage (UC-Berkeley), On Double-Distortion Arguments, Distribution Policy, and the Optimal Choice of Tax Instruments:

There are both administrative and political constraints on the extent to which real-world tax systems might plausibly be reformed. No one seriously suggests that tax avoidance and evasion could be completely eliminated in real-world contexts. To better cope with tax avoidance and evasion, and to complement attempts to reform existing tax systems, this research project argues that governments should also raise revenues and promote distribution through a number of supplementary policy instruments. Among other applications, this research project argues that governments should probably: (a) levy both personal labor-income taxes and value-added consumption taxes, (b) tax both capital income and wealth, and (c) make use of a number of other tax and non-tax legal rules for distributive purposes.

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

Yin: Reforming (and Saving) the IRS by Respecting the Public’s Right to Know

TaxSymposiumHeaderGeorge K. Yin (Virginia), Reforming (and Saving) the IRS by Respecting the Public’s Right to Know, 100 Va. L. Rev. 1115 (2014):

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

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

Adam Chodorow: Teaching Tax Policy with Senator Kyl

TaxProf Blog op-ed:  Teaching Tax Policy with Senator Kyl, by Adam Chodorow (Arizona State):

Chodorow KylePerhaps I’m a little biased, but after Basic Income Tax, I think Tax Policy is the best course in the law school curriculum. The course can be taught in a variety of ways, ranging from a traditional seminar, where students read and discuss academic articles and write a seminar paper or a series of reaction papers, or as a colloquium, where tax scholars present their works in progress to students, who are asked to engage with the works and provide feedback to the presenters. For the past two years, I have had the opportunity to teach tax policy with Senator Jon Kyl, who served on the Finance Committee for many years before he retired in 2012. Given his experience and interests, we decided to structure the class around current reform proposals and to combine the discussion of tax policy with some practical skills training. While I’m sure we’re not the first to hit upon this format, I offer up our experiences as food for thought for those looking to create or modify a tax policy course.

The basic idea is to alternate weeks between teaching and lobbying. In the first week, I assign readings on and teach the basic issues surrounding a particular reform under discussion, such as changes to the charitable deduction or switching from a global to territorial international tax regime. At the end of that class, I assign each student to an interest group and have them prepare a 3 page position paper. In week 2, Senator Kyl attends, pretending to be a senator on the finance committee (a real stretch on his part). We start each class with a discussion of the politics surrounding the proposals under discussion or some other aspect of the tax writing process, such as the scoring rules, after which the students lobby the senator. The class finishes with a broad discussion about the policy under consideration. At the end of the semester, the students must write a 5 page reflection piece on how their thoughts on tax policy had changed, or not, as a result of the semester’s journey.

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October 7, 2014 in Legal Education, Tax, Teaching | Permalink | Comments (1)

Madoff: A Better Way to Encourage Charity: Incentivize Private Foundations to Give More

New York Times op-ed:  A Better Way to Encourage Charity, by Ray D. Madoff (Boston College):

How can we increase the flow of money to charitable organizations? With the anemic economic recovery and cuts in government funding, the need for donations is greater than ever, yet funding for charities has remained largely stagnant.

One important source of funds for charitable organizations is private foundations, large ones like the Bill and Melinda Gates Foundation or small family foundations with assets of $1 million or less. These organizations do not usually engage in charitable work themselves, but rather provide funding to organizations that do — think of the Red Cross, food banks, museums, etc.

There is over $600 billion sitting in private foundations awaiting distribution. However, private foundations have typically limited their annual giving to the minimum amount required by law: 5 percent of their assets. Moreover, since the payment of salaries and other administrative expenses can also count toward the 5 percent requirement, charities often receive far less than the minimum distribution rule would suggest.

Charities have begged and pleaded for increased distributions from these warehouses of wealth, to no avail.

What is to be done? A bill currently making its way through Congress, called the America Gives More Act, purports to provide the answer. While much of the bill is benign, included among its provisions is one that lobbyists for private foundations have been seeking for years: a reduction in the excise tax on private foundations to 1 percent. ...

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October 7, 2014 in Tax | Permalink | Comments (1)

The IRS Scandal, Day 516

IRS Logo 2Power Line:  Is Another Obama Administration Scandal About to Explode:

While strong cases can be made for both Benghazi and Fast and Furious, most voters consider Barack Obama’s misuse of the IRS to be his administration’s worst scandal so far. But, as we wrote last year, targeting of conservative non-profits for harassment is not the only dimension of the IRS scandal. In addition, there is strong reason to believe that one or more White House political appointees have illegally accessed private taxpayer information and used it for political gain. 

Austan Goolsbee directed Obama’s Economic Recovery Advisory Board and later chaired his Council of Economic Advisers. In August 2010, Goolsbee conducted a telephone press briefing in which, according to the Washington Post, he purported to reveal confidential taxpayer information:

So in this country we have partnerships, we have S corps, we have LLCs, we have a series of entities that do not pay corporate income tax. Some of which are really giant firms, you know Koch Industries is a multibillion dollar businesses. So that creates a narrower base because we’ve literally got something like 50 percent of the business income in the U.S. is going to businesses that don’t pay any corporate income tax.

There are three possibilities here: either Goolsbee just made up the claim that Koch Industries doesn’t pay corporate income taxes; or he learned Koch’s tax status from some proper, legal source; or else he illegally accessed Koch’s tax returns and used the information he learned for political purposes in a call with reporters. ...

The wheels of justice, as they say, grind slowly. As with other Obama administration scandals, Barack’s effort is to run out the clock. It may be that by the time we learn the full extent of the Obama administration’s lawlessness, the administration will be over. But the remaining options are not good: either Austan Goolsbee, a senior adviser to Obama, made up a smear of Koch Industries out of whole cloth, or else Obama’s IRS allowed the White House illegal access to confidential taxpayer data for political purposes. That’s a crime for which at least two people should go to jail.

[I]t is likely that members of the Obama administration committed federal crimes by illegally sharing confidential taxpayer information with the White House for political purposes. With luck, we will find out for sure before our next president is inaugurated. The alternative is that a high-ranking White House official fabricated a baseless smear against the administration’s political opponents and passed it on to reporters to further the administration’s political agenda. Any way you look at it, this is a shameful episode in the already bleak history of the Obama administration.

Forbes, TIGTA Must Disclose More About Investigation Of Possible IRS Release Of Koch Industries Return Information, by Peter J. Reilly:

TIGTA has publicly acknowledged that it investigated whether Mr. Goosbee’s statement was based on improper disclosure by the IRS. There seems to be a good chance that it was a pretty easy investigation seeing as how it is extremely likely that Goosbee was flat out wrong in his speculation that KI was an S corporation. Taking that as the scenario, how can TIGTA then explain the results of the investigation without disclosing the very thing that was not supposed to be disclosed? Koch Industries’s status as either a C or an S Corporation.

Cause of Action still argued that TIGTA needed to be more forthcoming not only about its investigation of the Goosbee matter but also whether any of its other investigations of improper disclosure involve the White House. Mr. Epstein indicated that you might be able to connect the dots to the Tea Party scandal, if you could find out whether TIGTA is investigating breaches of taxpayer confidentiality involving the White House and applications for not for profit status. Using the very statute that is meant to protect taxpayers against breaches of confidentiality to protect the breachers does appeal to my inner villain as a masterful stroke, so I think Cause of Action has a point.

More important than my opinion is that of Judge Amy Berman Jackson, who was nominated by President Obama to serve on United States District Court for the District of Columbia, shortly before Mr. Goosbee’s unfortunate remark. Judge Jackson ruled that TIGTA should disclose more:

The Court finds that the fact of the existence of any records within the category of records that plaintiff seeks is not confidential “return information” under section 6103 of the Internal Revenue Code, and so defendant’s Glomar response is not supported by FOIA Exemption 3. Furthermore, although the existence of some records might be a fact protected by FOIA Exemption 7(C), the Court finds that defendant has waived reliance on both Exemption 7(C) and Exemption 6 by officially acknowledging its investigation into questions raised by the public statements of a particular administration official, and by failing to offer any other basis that would support a Glomar response on those grounds. Therefore, defendant’s motion for summary judgment will be denied, and plaintiff’s cross-motion for summary judgment will be granted. The Court will remand the case to the agency for further action consistent with this opinion. A separate order will issue.

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

Monday, October 6, 2014

Norman Presents Corporate Tax and Beyond: Compliance Norms Today at McGill

Norman 2Wayne Norman (Duke University, Department of Philosophy) presents Corporate Tax and Beyond: Compliance Norms at McGill today as part of its Spiegel Sohmer Tax Policy Colloquium hosted by Allison Christians and Daniel Weinstock:

Using the media's recent coverage of Apple's tax avoidance strategies as a case study, Professor Norman will discuss how we ought to understand and rationalize corporate social responsibility and self-regulation norms emerging around the taxation of multinationals, and whether these rationalizations are, or should be, different than the rationalization of corporate tax regulation.

October 6, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Galle Presents The Price of Knowledge: Regulatory Design in an Uncertain World Today at Florida

GalleBrian Galle (Boston College) presents The Price of Knowledge: Regulatory Design in an Uncertain World at Florida today as part of its Graduate Tax Program Colloquium Series:

I examine a regulator’s choice of how and when to regulate when marginal costs and marginal social benefits of compliance vary across regulated parties and are costly to observe. Recent commentary suggests that heterogeneity of marginal cost favors “carrots” over “sticks.” Other commentary argues that heterogeneity of marginal social benefit may favor ex post over ex ante regulation, or may weigh in favor of “command and control” regulation rather than either sticks or carrots. While these recent papers add important nuance to the regulatory design literature, I argue here that their analysis overlooks several other critical factors that may alter their final policy recommendations. For example, I show that when marginal cost varies and moral hazard is possible, optimal government policy is a mix of stick and carrot, much as the optimal insurance contract provides for some co-payment by the insured. Ex post regulation does provide useful additional information when regulated parties are heterogeneous, but also carries significant and sometimes prohibitive social cost, especially when externalities are produced by limited-liability firms. Further, drawing on results from mathematical simulations, I show that the costs of heterogeneity can be sharply reduced even with a small degree of government flexibility. I apply these insights to a series of examples, including the pending U.S. cap-and-trade regulations, fat taxes, and the regulation of systemic risk in the banking sector.

October 6, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

McMahon Presents Reforming Taxation of Privately Held Businesses Today at Loyola-L.A.

McMahon (Marty)Martin J. McMahon Jr. (Florida) presents Reforming Taxation of Privately Held Businesses at Loyola-L.A. today as part of its Tax Policy Colloquium Series:

This article proposes the repeal of current Subchapters K and S, as well as the removal from the ambit of Subchapter C of all privately held corporations and the replacement of the current tax regime for privately held business with a new regime under which all privately held businesses (including wholly owned corporations and limited liability companies, and unorganized sole proprietorships) would be taxed at the entity level under a uniform rate schedule, regardless of the form of organization. (All publicly traded companies, and their controlled corporate subsidiaries, would continue to be governed by all of the structural rules of Subchapter C (and any other relevant Code sections outside of Subchapter C.))

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October 6, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Tax Court: Tenured Art Professor Has Separate Trade or Business as Artist

Crile v. Commissioner, T.C. Memo. 2014-202 (Oct. 2, 2014):

CrilePetitioner is an artist and a tenured professor of studio art. ... This opinion addresses the first of respondent’s theories and concludes that petitioner during the years in issue was engaged in a “trade or business” with the objective of making a profit from her activity as an artist. Respondent’s contentions concerning the substantiation of her expenses, the character of those expenses as “ordinary and necessary,” and her liability for penalties and additions to tax will be resolved in due course.

Petitioner has had a long, varied, and distinguished career as an artist. She has worked for more than 40 years in media that include oil, acrylic, charcoal, pastels, printmaking, lithograph, woodcut, and silkscreen. She has exhibited and sold her art through leading galleries; she has received numerous professional accolades, residencies, and fellowships; and she is a full-time tenured professor of studio art at Hunter College in New York City. Respondent agrees that petitioner has been a successful, though rarely a profitable, artist.

During the academic year petitioner devotes roughly 30 hours per week to her art, working mainly at a small studio in her Manhattan apartment. During the summer, she works full time on her art business at a larger studio in upstate New York. The amount of time it takes petitioner to create a finished work of art varies greatly--from one week to two years--depending on its size and complexity. During her career petitioner has created more than 2,000 pieces of art.

Petitioner’s artwork hangs in the permanent collections of at least 25 museums. These include the Metropolitan Museum of Art, the Guggenheim Museum, the Brooklyn Museum of Art, the Phillips Collection, the Hirshhorn Museum, and art museums at eight colleges and universities. Museums have a rigorous vetting process for acquiring art. Museum acquisitions boost an artist’s reputation in the eyes of collectors and may contribute to price increases for the artist’s other works.

Petitioner’s artwork has been acquired by for-profit as well as nonprofit entities. Corporations that have purchased petitioner’s art (several of which have since merged) include AT&T, Exxon, Texaco, Standard Oil of Ohio, Bank of America, Chase Manhattan Bank, Chemical Bank, Charles Schwab, General Mills, Westinghouse, General Telephone & Electronics, Frito-Lay, Cigna, and Prudential. Her works hang in the collections of six major New York law firms. Governmental entities that have acquired her art include the Federal Reserve Board, the Library of Congress, and the State Department (for display in U.S. embassies abroad). Such acquisitions, like museum acquisitions, place a “seal of approval” on an artist’s works and have the potential to make them more attractive to private collectors. ...

Petitioner has generated substantial income from sales of her artwork. Respondent stipulated that the total value of works sold during her career is at least $937,150. Galleries usually took a 50% commission. ...

All in all, the Court finds that petitioner sold, directly or through galleries, a total of 356 works of art during 1971-2013. These sales generated gross proceeds of approximately $1,197,150. After subtracting gallery commissions and other reductions, petitioner earned income of approximately $667,902 from sales of her art during these years. ...

To be promoted and gain tenure, a studio artist must exhibit art; the sale of art is not required. There is an expectation that a professor, once tenured, will continue to make and exhibit art. However, a tenured professor is no longer subject to annual performance evaluations, and the expectation to exhibit art is not rigorously enforced. Petitioner plans to continue her art business following her retirement from Hunter College. ...

Petitioner filed Federal income tax returns for all years in issue. On those returns she reported wage income between $85,999 and $106,058, and she reported other taxable income (interest, dividends, capital gains, pensions, and Social Security payments) between $17,658 and $67,046. On her Schedules C, she reported income and claimed the following expenses as deductions in connection with her activity as an artist during the years at issue:


Petitioner's theory for claiming deductions seems to have been that most experiences an artist has may contribute to her art and that most people with whom an artist socializes may become customers or otherwise advance her career. The trial established that a significant number of the deductions she claimed were not, within the meaning of section 162(a), "ordinary and necessary expenses" of conducting her art business but were "personal, living, or family expenses" non-deductible under section 262(a). The latter expenses appear to have included telephone and cable television bills, newspaper and magazine subscriptions, gratuities to doormen in her apartment building, taxicabs to the opera, museums, and social events, restaurant meals with friends and acquaintances, and international travel to gain inspiration from paintings in European museums. We have deferred to another day the calibration of petitioner's deductible business expenses. But it was clear to the Court that the economic losses she actually sustained in her art business were substantially smaller than the tax losses reported on her Schedules C, owing to the inclusion of many personal expenses when calculating her business income. ...

For any practitioner who teaches--whether a lawyer, an accountant, an economist, or an artist--there is an obvious intersection between the individual’s profession and his or her teaching. But the two activities have different job requirements and entail different skills.

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October 6, 2014 in Celebrity Tax Lore, New Cases, Tax | Permalink | Comments (5)

Wells: Pass-Through Entity Taxation -- A Tempest in the Tax Reform Teapot

Bret Wells (Houston), Pass-Through Entity Taxation: A Tempest in the Tax Reform Teapot, 14 Hous. Bus. & Tax L.J. 1 (2013):

Pass-through entities represent a major conceptual challenge for policy-makers today. But, pass-through entities did not occupy its dominant position with respect to growth-oriented small businesses prior to 1986, and the exponential growth in the importance of pass-through entity taxation since 1986 creates an impressive backdrop for the current business tax reform discussion. However, if tax reform proceeds along the path where corporate tax rates are significantly lower than individual tax rates, then small business taxpayers will be provided with a compelling economic incentive to exit pass-through entity structures in favor of C corporate entities. Tax reform that creates a monumental paradigm shift in the business planning premises of closely-held businesses will bring about transformative reactive tax planning on the part of the business community. Consequently, before enacting such a significant paradigm shift, Congress should clearly articulate the policy goals of this tax rate paradigm so that taxpayers will know which attempts to utilize C corporation vehicles as a mechanism to avoid the higher individual tax rate are acceptable and which such attempts cross the line. Where to draw the line is the historic challenge of the pre-1980 paradigm, but this reality has been shielded from our view due to the inverted rate structure that has existed since 1986.

October 6, 2014 in Scholarship, Tax | Permalink | Comments (0)

Blanchard: Notice 2014-52 and the New Anti-Inversion Rules

Tax Analysys Logo (2013) Kimberly S. Blanchard (Weil, Gotshal & Manges, New York), Extensive New Anti-Inversion Rules Issued, 145 Tax Notes 89 (Oct. 6, 2014):

Blanchard summarizes the provisions of anti-inversion guidance Notice 2014-52 and suggests some practical tips for what it might mean in the future.

October 6, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0)

The IRS Scandal, Day 515

IRS Logo 2Red State:  IRS Cover-Up: IG Report Exposes IRS Lying to American Public, by Matthew Clark:

A new Inspector General (IG) report general report exposes yet more abuse and cover-up at the IRS. As the Washington Examiner reports:

A review of the Internal Revenue Service’s compliance with the Freedom of Information Act found the agency intentionally withheld or failed to “adequately search” for requested information in hundreds of cases.

In others, the IRS released more than it was authorized, dispensing “sensitive taxpayer information,” including individuals’ bank records.

Many of the FOIA requests centered around, you guessed it, the IRS targeting scandal.

The cover-up is stunning.  “The IRS concealed information it should have released in response to an estimated 336 requests in 2013, according to the report.”

In response to a report (from the same IG’s office) detailing the IRS targeting scandal, the American public demanded to know the truth.  The American people sent in numerous FOIA requests, and the IRS concealed pertinent information at least 336 times.

If that’s not a cover-up I don’t know what is.

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October 6, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

TaxProf Blog Weekend Roundup

Sunday, October 5, 2014

Larson: The Return of George Washington, 1783-1789

My friend and colleague Ed Larson has published his latest book, The Return of George Washington, 1783-1789 (2014):

ReturnPulitzer Prize-winning historian Edward J. Larson [Summer for the Gods: The Scopes Trial and America's Continuing Debate Over Science and Religion (2006)] recovers a crucially important—yet almost always overlooked—chapter of George Washington’s life, revealing how Washington saved the United States by coming out of retirement to lead the Constitutional Convention and serve as our first president.

After leading the Continental Army to victory in the Revolutionary War, George Washington shocked the world: he retired. In December 1783, General Washington, the most powerful man in the country, stepped down as Commander in Chief and returned to private life at Mount Vernon. Yet as Washington contentedly grew his estate, the fledgling American experiment floundered. Under the Articles of Confederation, the weak central government was unable to raise revenue to pay its debts or reach a consensus on national policy. The states bickered and grew apart. When a Constitutional Convention was established to address these problems, its chances of success were slim. Jefferson, Madison, and the other Founding Fathers realized that only one man could unite the fractious states: George Washington. Reluctant, but duty-bound, Washington rode to Philadelphia in the summer of 1787 to preside over the Convention.

Although Washington is often overlooked in most accounts of the period, this masterful new history from Pulitzer Prize-winner Edward J. Larson brilliantly uncovers Washington’s vital role in shaping the Convention—and shows how it was only with Washington’s support and his willingness to serve as President that the states were brought together and ratified the Constitution, thereby saving the country.

Wall Street Journal, George Washington’s Years of Retirement Shaped the Republic as Much as the Victories He Won on the Battlefield, by Richard Snow:

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October 5, 2014 in Book Club, Legal Education, Scholarship, Tax | Permalink | Comments (0)

Top 5 Tax Paper Downloads

SSRN LogoThis week's list of the Top 5 Recent Tax Paper Downloads on SSRN is the same as last week's. The #1 paper is now #19 in all-time downloads among 10,351 tax papers:

  1. [3247 Downloads]  'Competitiveness' Has Nothing to Do with it, by Edward D. Kleinbard (USC)
  2. [334 Downloads]  2013 Developments in Connecticut Estate and Probate Law, by Jeffrey A. Cooper (Quinnipiac) & John R. Ivimey (Reid and Riege, Hartford)
  3. [264 Downloads]  Public Pressure and Corporate Tax Behavior, by Scott Dyreng (Duke), Jeffrey Hoopes (Ohio State) & Jaron Wilde (Iowa)
  4. [208 Downloads]  The OECD'S Flawed and Dated Approach to Computer Servers Creating Permanent Establishments, by Monica Gianni (Florida)
  5. [129 Downloads]  Rights Without Remedies, by Matthew L. M. Fletcher (Michigan State)

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

The IRS Scandal, Day 514

IRS Logo 2New York Post editorial:  The Lois Lerner App:

Imagine if you downloaded something that ended up wiping out all the information you needed before meeting with an IRS agent asking about discrepancies on your tax return. How sympathetic do you think that IRS agent would be?

But when it comes to the IRS itself, this is just what officials would have us believe. Turns out too it’s not just Lois Lerner, whose computer crashed right after Congress asked for info about the tax targeting of conservative organizations.

Now we’re learning of another case where hard drives holding information that would help tell us what the IRS was up to have gone missing in the midst of a contentious lawsuit. That’s precisely the allegation NetJets, a private jet company, is now making in federal court. ...

The Columbus Dispatch reports NetJets has filed a motion with US District Court Judge Edmund Sargus Jr., claiming the IRS has “wiped clean a number of computer hard drives containing e-mails and other electronic documents that the government was required to produce” in the company’s lawsuit against the agency.

Maybe the answer here isn’t a federal lawsuit but a computer-repair firm that can debug every computer in the IRS of all that Lois Lerner malware.

Taxable Talk:  One Good Erasure Deserves Another, by Russ Fox:

I wonder if this sounds familiar to anyone: An organization is looking for key information stored on IRS computers. A lawsuit ensues, and the hard drives were allegedly wiped clean.

No, I’m not talking about the IRS Scandal, Lois Lerner, and the Freedom of Information Act lawsuits. Rather, I’m talking about a tax fight between NetJets and the IRS. NetJets sued the IRS for $643 million alleging, according to the Columbus Dispatch, that a ticket tax was misapplied. The IRS countersued for $366 million, alleging that NetJets hasn’t paid all their taxes. Both sides have petitioned for summary judgement. ...

Most of the time, I wouldn’t believe that the IRS would do this. As of 18 months ago, I wouldn’t believe that the IRS would lie to Congress, would target conservative applicants for nonprofit status, and that the hard drive of any computer (or other electronic device) touched by Lois Lerner would be magically erased.

On a serious note, the fact that the IRS has done these things (even if it’s just a coincidence that the hard drive of any computer Ms. Lerner touched died) will make judges highly skeptical of the IRS. I have no idea who is right on the NetJets vs. IRS fight. I do know that the IRS’s position sure sounds fishy to me.

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October 5, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Saturday, October 4, 2014

Are College Football Coaches Overpaid?

Randall S. Thomas (Vanderbilt) & R. Lawrence Van Horn (Vanderbilt), Are Football Coaches Overpaid? Evidence from Their Employment Contracts:

SabanThe commentators and the media pay particular attention to the compensation of high profile individuals. Whether these are corporate CEOs, or college football coaches, many critics question whether their levels of remuneration are appropriate. In contrast, corporate governance scholarship has asserted that as long as the compensation is tied to shareholder interests, it is the employment contract and incentives therein which should be the source of scrutiny, not the absolute level of pay itself. We employ this logic to study the compensation contracts of Division I FBS college football coaches during the period 2005-2013. Our analysis finds many commonalities between the structure and incentives of the employment contracts of CEOs and these football coaches. These contracts’ features are consistent with what economic theory would predict. As such we find no evidence that the structure of college football coach contracts is misaligned, or that they are overpaid.

October 4, 2014 in Scholarship, Tax | Permalink | Comments (13)

Ben Bernanke's Mortgage and Tax Policy

Bloomberg:  Why Does Bernanke Want a Mortgage, Anyway? Low Rates and Tax Breaks, by Richard Rubin:

BernankeBen Bernanke says he can’t refinance his house. ... Speaking at a conference yesterday in Chicago, Bernanke lamented tighter credit rules and said he’d been unsuccessful in trying to refinance his own home loan. “I’m not making that up,” he said when the audience reacted with laughter. ...

With his book advance and speaking fees, why does the former Federal Reserve chairman even want a mortgage? Even for the wealthiest Americans who can afford to buy their houses outright, mortgages come with a double benefit: interest rates low enough that returns on investments can beat them, and a tax subsidy that covers nearly half the interest cost.

A 15-year loan carries a 3.36 percent interest rate this week, according to Freddie Mac. And at the top federal and Washington, D.C., tax rates of 39.6 percent and 8.95 percent, the mortgage interest deduction reduces Bernanke’s real cost of borrowing even further.

Bernanke’s situation highlights a flaw in the tax code, said Harry Stein, associate director for fiscal policy at the Center for American Progress, a Washington group typically aligned with Democrats. “He can do better investing the speaking fees in the stock market than using them to pay his mortgage and own his house outright,” he said. “I can’t imagine the public policy case for subsidizing leveraged investment for affluent people and there’s just no world in which that makes sense.”

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

The IRS Scandal, Day 513

IRS Logo 2Wall Street Journal op-ed:  The New Bureaucratic Brazenness: Official Arrogance Is the Source of Public Cynicism, by Peggy Noonan:

We’re all used to a certain amount of doublespeak and bureaucratese in government hearings. That’s as old as forever. But in the past year of listening to testimony from government officials, there is something different about the boredom and indifference with which government testifiers skirt, dodge and withhold the truth. They don’t seem furtive or defensive; they are not in the least afraid. They speak always with a certain carefulness—they are lawyered up—but they have no evident fear of looking evasive. They really don’t care what you think of them. They’re running the show and if you don’t like it, too bad.

And all this is a new bureaucratic style on the national level. During Watergate those hauled in and grilled by Congress were nervous. In Iran-Contra, Ollie North was in turn stoic, defiant and unafraid to make an appeal to the public. But commissioners and department heads now—they really think they’re in charge. They don’t bother to fake anxiety about public opinion. They care only about personal legal exposure. They do not fear public wrath.

All this became apparent in the past year’s IRS hearings, and was pronounced in Tuesday’s Secret Service hearings. ...

Sometimes it looks as if everyone in public life is in showbiz, only showbiz with impermeable employee protections. Lois Lerner of IRS fame planted the question, told the lie, took the Fifth, lost the emails and stonewalled. Her punishment for all this was a $100,000-a-year pension for the rest of her life. Imagine how frightened she was. I wonder what the Secret Service head’s pension will be?

A nation can’t continue to be vibrant and healthy when the government controls more and more, and yet no one trusts a thing the government says. It’s hard to keep going that way.

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October 4, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Friday, October 3, 2014

Weekly Tax Roundup

October 3, 2014 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Weekly SSRN Tax Roundup

October 3, 2014 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Weekly Student Tax Note Roundup

Weekly RoundupChristopher Weeg (J.D. 2015, Florida), Starting with the [Tax] Man in the Mirror: Asking the IRS to Change its Ways of Valuing Postmortem Publicity Rights (Second Place, 2014 Federal Bar Association’s Donald C. Alexander Tax Law Writing Competition):

Legal issues often arise at the intersection between a new legal right and an existing legal framework. In the estate tax world, the relatively new right of publicity clashed with the well-settled statutory language defining the value of a gross estate. In 1994, the court in Estate of Andrews v. United States, addressed the “issue of first impression” of the value of an author’s name as part of her estate for federal tax purposes. Andrews’ ruling demonstrated that publicity rights are (1) includible in a decedent’s gross estate and (2) valued based on a hypothetical sales transaction between a buyer and a seller.

Even after Andrews, the inclusion and valuation of these descendible rights for federal estate tax, as well as the liquidity issues they pose to cash-strapped estates, have continued to be debated by highly regarded scholars and practitioners. Mitchell M. Gans, Bridget J. Crawford, and Jonathan G. Blattmachr advocated for a legislative solution to this problem [Postmortem Rights of Publicity: The Federal Estate Tax Consequences of New State-Law Property Rights, 117 Yale L.J. Pocket Part 203 (2008)]. They proposed a modification to state law, whereby a decedent’s publicity rights automatically pass to a designated statutory heir and, thus, are excluded from the gross estate.6 In response to the proposal, Joshua C. Tate argued that the publicity rights, through the supposed restriction on testamentary control by automatic vesting in the statutory heir, are nonetheless includible in a decedent’s estate because the celebrity enjoyed a property interest in them at the date of death [Marilyn Monroe’s Legacy: Taxation of Postmortem Publicity Rights, 118 Yale L.J. Pocket Part 38 (2008)]. Following Tate’s article, Gans, Crawford, and Blattmachr defended their position that post-death control is a requirement for estate tax inclusion [The Estate Tax Fundamentals of Celebrity and Control, 118 Yale L.J. Pocket Part 50 (2008)]. Tate replied that, in effect, their proposal was an estate tax free lunch for celebrities and, thus, did not serve the broader policy justifications and normative goals of the federal estate tax [Immortal Fame: Publicity Rights, Taxation, and the Power of Testation, 44 Ga. L. Rev. 1 (2009)].

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October 3, 2014 in Scholarship, Tax, Weekly Student Tax Note Roundup | Permalink | Comments (0)

4th Annual NYU/UCLA Tax Policy Symposium: Thomas Piketty’s Capital in the Twenty-First Century

NYU UCLAThe Fourth Annual NYU/UCLA Tax Policy Symposium on Thomas Piketty’s Capital in the Twenty-First Century takes place today at UCLA:

The day-long event will consist of five panels featuring leading scholars who will analyze the book from economic, legal, historical, political science and philosophical perspectives. Thomas Piketty will participate in the discussion and deliver responses to each of the papers presented.

  • Joseph Bankman (Stanford) & Daniel Shaviro (NYU), moderated by Eric Zolt (UCLA)
  • Gregory Clark (UC-Davis), moderated by Joshua Blank (NYU)
  • Wojciech Kopczuk (Columbia), moderated by David Kamin (NYU)
  • Suzanne Mettler (Cornell), moderated by Jason Oh (UCLA)
  • Liam Murphy (NYU), moderated by Kirk Stark (UCLA)

All papers will be published in the Tax Law Review in 2015.

October 3, 2014 in Book Club, Conferences, Scholarship, Tax | Permalink | Comments (0)

University of Washington Hosts 2014 Tax Symposium

UW 3The University of Washington hosts the 2014 Tax Symposium today:

Panel #1:  Neil Buchanan (George Washington) (moderator)

Panel # 2:  Katie Pratt (Loyola-L.A.) (moderator)

  • Andrew Blair-Stanek (Maryland), Crisis-Proofing Tax Law
  • Michelle Drumbl (Washington & Lee), Beyond Polemics: Poverty, Taxes, and Noncompliance
  • Michael Hatfield (Washington), Privacy and IRS Surveillance: An Agenda

Panel #3:  Jasper Smith (Tax Analysts) (moderator)

Incubator Sessions:

  • Neil Buchanan (George Washington), The Impact of Piketty's Bestseller on Tax Policy and Scholarship
  • Heather Field (UC Hastings), The Rhetoric of Tax Loopholes & The Possibility of Meaningful Tax Reform
  • Steve Johnson (Florida State), Is a Value Added Tax Inevitable?
  • Rebecca Morrow (Wake Forest), Accelerating Depreciation in Recession
  • Katie Pratt (Loyola-L.A.), Encouraging Performance and Functional Review of Tax Expenditures

October 3, 2014 in Conferences, Scholarship, Tax | Permalink | Comments (0)

Woman Accused of Filing Fake Tax Return Seeking a $94 Million Refund

Atlanta Journal-Constitution:  Woman Accused of Filing Fake $94 Million Tax Return:

A woman accused of filing a phony state tax return for $94,323,148 was arrested when she attempted to claim her check at a Cobb County bank, Channel 2 Action News reported.

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

The IRS Scandal, Day 512

IRS Logo 2The Blaze:  Not Just Lois Lerner? Multi-Million Tax Suit Claims IRS ‘Wiped Clean’ Email Evidence in Separate Case:

An Ohio-based private jet company entangled in a multi-million dollar lawsuit with the Internal Revenue Service filed a motion this week asserting the tax agency is missing emails from three separate employees that would be evidence in the case, the Columbus Dispatch reported.

The court motion and the federal case are unrelated to the IRS targeting scandal. Nevertheless, it comes after extensive congressional inquiries in Washington over missing emails from Lois Lerner, the former head of IRS tax-exempt organizations unit, who last year admitted to giving extra scrutiny to conservative groups applying for exempt status.

The IRS said the subpoenaed Lerner emails were destroyed in a hard drive crash. The agency later admitted that other emails related to the targeting were missing.

The jet company, NetJets, asserts that the IRS “wiped clean a number of computer hard drives containing emails and other electronic documents that the government was required to produce,” according to the motion filed with U.S. District Judge Edmund A. Sargus Jr., the Dispatch reported.

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October 3, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Thursday, October 2, 2014

Georgia Seeks to Hire a Tax Prof

Georgia Law LogoThe University of Georgia School of Law is seeking entry-level and junior lateral candidates in tax.  Course needs are flexible but include Income Tax, Corporate Tax, International Tax, and State & Local Tax.  Interested persons should contact Randy Beck, Chair of the Faculty Recruitment Committee.

October 2, 2014 in Legal Education, Tax, Tax Prof Jobs | Permalink | Comments (0)

Bilgel & Galle: Tax Incentives and Organ Donation

Firat Bilgel (Okan University, Istanbul) & Brian D. Galle (Boston College), Paying for Altruism: The Case of Organ Donation Revisited:

DOnateAlthough many commentators have called for increased efforts to incentivize organ donations, theorists and some evidence suggest these efforts will be ineffective or even could perversely crowd out altruistic efforts. Prior papers examining the impact of tax incentives for donations generally report zero or negative coefficients. We argue these studies incorrectly define their tax variables, and rely on difference-in-differences methods despite likely failures of the requisite parallel trends assumption. We therefore aim to identify the causal effect of tax incentive legislation to serve as an organ donor on living related and unrelated kidney donation rates in the U.S states using more precise tax data and allowing for heterogenous and time-variant causal effects. Employing a synthetic control method, we find that the passage of tax incentive legislation increased living unrelated kidney donation rates by about 52 percent in New York relative to a comparable synthetic New York in the absence of legislation. We show that this causal effect is robust to the exclusion of any particular state as well as to the use of a very small number of comparison states.

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

Leff: Preventing Private Inurement in Tranched Social Enterprises

Benjamin M. Leff (American), Preventing Private Inurement in Tranched Social Enterprises, 41 Seton Hall L. Rev. ___ (2015):

Social Enterprises are organizations that are operated for the dual purpose of engaging in profit-making activity and furthering a social good. Because of their “hybrid” nature, social enterprises are perceived to be stymied by a legal system that is overly devoted to defining organizations as either businesses or nonprofits. Legal academics and legislatures have been hard at work trying to make room for social enterprises by experimenting with modifications the laws that constrain both businesses and nonprofits. One significant sector of this reform movement is devoted to making it easier for social enterprises to receive funding from both for-profit investors and charitable non-profits. They argue that social enterprises will not flourish until charitable non-profits are permitted make below-market investments in social enterprises for the purpose of subsidizing the return expected by for-profit investors. This combination of below-market charitable investments and market-rate for-profit investments is generally called a “tranched investment structure.” It is not impossible under current law, but reformers argue that it is unnecessarily difficult, primarily because of federal laws restricting nonprofit activities.

This article addresses the specific legal issues raised by a tranched investment structure. Previous scholarship (and legislative reform) has focused on specific rules that apply only to “private foundations,” a subcategory of § 501(c)(3) organizations, the general federal classification of charities. But, surprisingly, commentators have largely ignored the laws that apply to tranched investment structures involving any § 501(c)(3) organization. This article fills that gap.

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

Avi-Yonah: Reflections on the 'New Wave' Inversions and Notice 2014-52

Reuven S. Avi-Yonah (Michigan), A World Turned Upside Down: Reflections on the 'New Wave' Inversions and Notice 2014-52, 145 Tax Notes 95 (Oct. 6, 2014):

On September 22, 2014, the Treasury issued Notice 2014-52 (the “Notice”). The Notice was intended to fulfill President Obama’s pledge to use executive actions to the extent possible to block the new wave of corporate inversions. To what extent can the Notice succeed?

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

The Tax Status of America's Professional Sports Leagues

SPorts LogosFederation of American Scientists, Legal Sidebar: Questions Raised About NFL’s Tax-Exempt Status (from the Congressional Research Service):

  • MLB:  Voluntarily gave up its § 501(c)(6) tax exempt status in 2009
  • NBA:  Taxable
  • NHL:  Tax-exempt under  § 501(c)(6)
  • NFL:  Tax-exempt under  § 501(c)(6)
  • PGA:  Tax-exempt under  § 501(c)(6)

(Hat Tip: Bruce Bartlett.)

October 2, 2014 in Tax | Permalink | Comments (1)

Do Law Schools Teach (and Model) Inefficiency (Especially in Tax Law)?

SeytLines Blog, Another Reason to Re-Think Legal Education:

EfficiencyLawyers have suggested many reasons for changing legal education. I have another one to add to the list. I think legal education teaches inefficiency. From day one in law school, law students are taught to be inefficient in the practice of law. By the time they hit the world outside academia and start practicing, they have three years of intensive inefficiency training. In a world that has moved towards reducing waste, at least in corporations, having someone join the workforce who has been taught inefficiency adds some complications. At a minimum, it means we will spend years re-training them, at the same time they are learning to practice. More realistically, we will end up with many lawyers who are never re-trained. ...

The good news is that this one issue could be fixed at little or no cost. The first step is teaching law school faculty about the modern practice of law. Seminars, workshops, and other training tools can accomplish that goal. The second step is to have law school faculty start modifying existing courses to reflect these modern practices and incorporate them as part of the core learning experience. My son is taking accounting, yet they don’t have him using accounting ledger paper from the 1930s to learn double-entry bookkeeping. If he can learn the basics of accounting with Excel, I’m not sure why law students can’t learn the basics of contract law in combination with Word and contract automation. Third, law schools should start thinking about law in the context of problems presented by clients. This isn’t a novel suggestion, but it still is a good one. Some classes should be integrated classes where students confront problems that require cross-functional thinking. Three years of training students to think one-dimensionally creates habits that are difficult to break. Problems don’t come neatly sliced into property law, tax, or other substantive areas.

The last point involves a personal pet-peeve, so I’ll share a story about it. As a corporate general counsel, I spent a fair amount of time on tax issues. The companies where I worked had global businesses, so we had plenty of international tax “opportunities.” On more than one occasion, partners from whichever of the Big Four accounting firms my company used would come to us with a tax proposal. They would have spent a fair amount of time working on the proposal and consulting with our tax team. They would invite the corporate lawyers to an overview presentation. We would identify several fatal flaws in the plan almost immediately. Those flaws were missed because the tax practitioners knew nothing about and didn’t take the time to ask about, the corporate law aspects of what they proposed. We would suggest many ways to work around the problem, and usually, after much additional work by the tax practitioners, we would land on a solution. I would always ask why the tax practitioners didn’t come to us right at the start, knowing that the key to the entire plan depended on corporate work, so that we could develop an integrated solution that worked. They always responded, “we were taught to look at the tax issues and let someone else think about the rest.” Not very efficient.

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October 2, 2014 in Legal Education, Tax | Permalink | Comments (2)

The IRS Scandal, Day 511

IRS Logo 2National Review:  IRS Erased Key Records in Lawsuit, NetJets Says, by John Fund:

There may be a pattern involving the IRS losing e-mails and other key computer records. For months, the House Oversight Committee has been pursuing the lost e-mails of Lois Lerner and other figures in the IRS tax-exempt organization scandal. 

Now, the private-jet company NetJets is claiming in a lawsuit that as part of its tax dispute with the agency the IRS “wiped clean a number of computer hard drives containing emails and other electronic documents that the Government was required to produce.”

Washington Free Beacon:  Court: Obama Admin Can’t Hide Investigation into Former White House Adviser; Austan Goolsbee Suspected of Illegally Revealing Koch Tax Details to Press:

The Obama administration must acknowledge the existence of an independent investigation into former White House senior economics adviser Austan Goolsbee’s alleged unauthorized access to the Koch brother’s tax returns, a court ruled Tuesday.

A federal judge ruled the Treasury Inspector General for Tax Administration (TIGTA) must disclose to watchdog group Cause of Action whether records of an investigation exist.

Cause of Action filed a Freedom of Information Act (FOIA) lawsuit after TIGTA refused to confirm or deny the existence of the investigation in what is commonly known as a “Glomar response.”

“The court has ruled that the federal government cannot hide behind confidentiality laws to prevent Americans from knowing if our President has gained unauthorized access to their tax information,” Cause of Action executive director Dan Epstein said in a statement Tuesday. “This is a decisive win for all Americans and for government transparency and accountability.”

Former White House Council of Economic Advisers chairman Austan Goolsbee sparked a mini-scandal in 2010 when he told reporters during a background press briefing that Koch Industries—the company of libertarian philanthropists Charles and David Koch—paid no income taxes.

Conservative lawmakers and activists said Goolsbee’s statements not only unfairly singled out the president’s political opponents but also used confidential IRS documents to do so.

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October 2, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Wednesday, October 1, 2014

Zolt Presents Fiscal Contracting in Latin America Today at Harvard

Zolt (2014)Eric M. Zolt (UCLA) presents Fiscal Contracting in Latin America (with Richard M. Bird (Toronto)) at Harvard today as part of its Tax Law, Policy and Practice Workshop Series hosted by Daniel Halperin and Stephen Shay:

Latin America has long been characterized as a region of high income inequality. In recent years, however, many countries have seen a decrease in income inequality and poverty levels and an increase in economic mobility. Fiscal policies have played a role in achieving these results. One important explanation for changing fiscal policies is the increasing economic and political role played by the growing middle class in shaping the level and quality of collective goods and services and the types of taxes and relative tax burdens to fund these expenditures. Through a process we call “fiscal contracting,” less unequal societies may be willing to pay more in taxes for expanded, relatively universal public services.

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

Schön Presents International Taxation of Risk Today at Toronto

SchoenWolfgang Schön (Max Planck Institute for Tax Law and Public Finance) presents International Taxation of Risk at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series:

The allocation of risk and of the income from risky investment and activities belongs to the central topics of international tax policy today. This fact is highlighted by the current BEPS initiative of G20 and OECD which casts doubt on the recognition of contractual risk allocation within multinational groups and its impact on profit allocation between separate entities within these groups. It is largely felt that “risk shifting” provides the basis for “profit shifting” by multinationals to the detriment of states and domestic competitors.

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

A Mother's Love

(Hat Tip: Naomi Goodno.)

October 1, 2014 in Legal Education, Tax | Permalink | Comments (0)

The Most Underrated and Overrated BigLaw Tax Practices

Above the Law, Over- And Underrated Biglaw Practice Groups:

OuATL’s Insider Survey (17,300 responses and counting — thanks everyone!), whereby practicing attorneys and current students evaluate their own schools or employers. Among other things, our survey asks attorneys to nominate firms with over- and underrated practices within the respondent’s own practice specialty. Litigators nominate litigation departments, etc. ...

Most Overrated Tax Practices
Davis Polk

Most Underrated Tax Practices
White & Case
Cahill Gordon

October 1, 2014 in Tax | Permalink | Comments (0)

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October 1, 2014 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

Orange is the New Black, Tax Edition

OrangeAvalara, Orange is the New Black, Tax Edition:

For most businesses in most states, when you sign up to be a business owner, you sign up to collect and remit sales and use tax. This may not be forefront in the minds of future business owners of America, but it should be. Failure to collect, report and remit sales tax in a timely manner can land you behind bars (the kind that obscure the view, not the kind that serve drinks).

October 1, 2014 in Tax | Permalink | Comments (0)

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

The IRS Scandal, Day 510

IRS Logo 2Daily Caller:  After Holder: Four Things The Next Attorney General Must Address, by Dan Epstein (Executive Director, Cause of Action):

Attorney General Eric Holder may be heading for the exit door at the Department of Justice (DOJ), but numerous gaps in the agency’s enforcement remain. Will the next attorney general address fraud, transparency, and oversight concerns? We recommend four issues the next attorney general can and should resolve. ...

IRS Political Targeting: Americans have known for over a year about the Internal Revenue Service’s political targeting of non-profit groups. Cause of Action first petitioned DOJ to look into this scandal in May 2013. While an investigation has begun, the DOJ assigned an attorney from the Civil Rights Division (CRD), which mostly prosecutes hate crimes cases and conspiracies to violate civil rights, to investigate the IRS. If criminal violations are uncovered in the investigation, the CRD may not have the authority to handle them, given its jurisdiction. That is why the next attorney general should appoint a special counsel to direct the investigation.

Lois Lerner’s Emails: Perhaps the most confounding part of the IRS scandal is the somehow “lost” emails of Lois Lerner, the IRS official at the heart of the scandal. Cause of Action’s investigation indicates that in losing this valuable information, multiple government officials violated the Federal Records Act, which instructs agencies to create their own regulations regarding document retention. IRS regulations, for instance, required Ms. Lerner to print and file her emails and her attachments. By failing to preserve Lerner’s records, the IRS may have violated its own regulations — and therefore the Federal Records Act.

To this day, the Department of Justice refuses to investigate this potential violation of law, so we urge the next attorney general to conduct an investigation to determine if there has been a violation of the Federal Records Act.

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October 1, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

The IRS Scandal, Days 401-500

IRS Logo 2

October 1, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)