TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

Tuesday, May 10, 2016

The IRS Scandal, Day 1097

IRS Logo 2New York Post editorial, Facebook’s Faked ‘Trending News’ Is a Warning Not to Trust Silicon Valley:

Well, so much for Facebook’s claims to be an honest information broker: Turns out its list of “trending” topics comes with a hefty political bias.

The site Gizmodo on Monday reported what it had heard from some of the “news curators” who actually create the “trending” feed — which only starts with topics flagged by a computer algorithm as to what users are actually posting about.

The exposé reveals one level of bias imposed by management — and another from the peons hired to do the work.

Several curators cited routine nixing of right-of-center topics — news about Mitt Romney, Wisconsin Gov. Scott Walker and even Lois Lerner, the face of the IRS scandal.

Ironic: IRS employees used their power to suppress righty speech, and Facebook then suppressed the fact its users cared about it . . .

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May 10, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Monday, May 9, 2016

Georgetown Graduate Tax Program Receives $1 Million Gift For Student Scholarships

Georgetown (2016)Press Release, Georgetown Law, Baker & McKenzie Establish Leonard B. Terr Memorial Scholarship:

Georgetown Law, the law firm of Baker & McKenzie, and family and friends of the late Leonard B. Terr have established a $1 million scholarship to assist students in the graduate tax program. Terr, a Baker & McKenzie partner and Law Center adjunct professor, taught tax law at Georgetown for 17 years before his death in 2015.

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May 9, 2016 in Legal Education, Tax | Permalink | Comments (1)

WSJ:  What Is Prince’s Legacy Worth? The Tax Man Wants To Know.

DovesFollowing up on my previous post, Prince Died Without A Will, According To Court Documents:  Wall Street Journal, What Is Prince’s Legacy Worth? The Tax Man Wants to Know:

After the doves cry, there’s IRS Form 706.

Estate-tax attorneys for Prince, who died [April 21], must attempt to put a precise financial value on his name, image and likeness.

That Prince-ness could make him one of America’s top-earning deceased celebrities, and it may be one of his estate’s largest assets—subject to a 40% federal tax.

The Internal Revenue Service is used to putting price tags on tradeable assets and is well-trained in taking existing revenue streams and capitalizing them into a value. It is much trickier to divine the worth of a unique niche business—marketing Prince’s legacy—that doesn’t really exist yet.

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May 9, 2016 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Taxing Carried Interest As Ordinary Income Through Executive Action

Following up on my previous post, Taxing Carried Interest As Ordinary Income Through Executive Action:  New York Times:  Ending Tax Break for Ultrawealthy May Not Take Act of Congress, by Gretchen Morgenson:

It’s only natural that Barack Obama, entering the homestretch of his presidency, would be concerned about his legacy. Judging from a recent interview in The New York Times Magazine, getting credit for the actions he has taken on economic issues seems to be of special interest to him.

Mr. Obama expressed frustration that many middle-class Americans feel they’ve been left behind during his time in office. The wealthiest Americans, meanwhile, have become richer during the Obama years.

There is a lot about this problem of income inequality — and about the economy over all — that Mr. Obama cannot control. Still, there is something he could do right now to help narrow the widening gulf between rich and poor.

In one deft move, Mr. Obama could instruct officials at his Treasury Department to close the so-called carried interest tax loophole that allows managers of private equity and hedge funds to pay a substantially lower federal tax rate on much of their income.

Forcing these managers to pay ordinary income taxes on the gains they reap in their funds would accomplish two things. It would take away an enormous benefit enjoyed almost exclusively by some of the country’s wealthiest people. And, tax experts say, it would generate billions in revenue to the government each year, though there are wide differences over exactly how much.

But doesn’t changing the carried interest loophole require an act of Congress? Not according to an array of tax experts. Just as Mr. Obama’s Treasury Department recently changed the rules to curb corporate inversions, in which companies shift their official headquarters to another country to lower their tax bills, the Treasury secretary, Jacob J. Lew, and his colleagues could jettison the carried interest loophole.

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May 9, 2016 in Tax | Permalink | Comments (6)

IRS Seeks Grant Applications for Funding for Low Income Taxpayer Clinics, Volunteer Tax Assistance Programs

IRS Logo 2The IRS has announced that it is accepting grant applications for Low Income Taxpayer Clinics (IR-2016-70) and Volunteer Tax Assistance Programs (IR-2016-71) for the 2017 grant cycle (Jan. 1 - Dec. 31, 2017).

Low Income Taxpayer Clinics

Applications will be accepted through June 20, 2016. The LITC program awards matching grants of up to $100,000 per year to qualifying organizations to develop, expand, or maintain a low income taxpayer clinic. 

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May 9, 2016 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1096

IRS Logo 2Bloomberg BNA, Americans for Prosperity Shows That Rough and Tumble Issue Activism Could Serve as a Shield for Charities Against Donor Disclosures:

We all know the saying “politics ain’t beanbag” – and the ranks of candidates for high office seem to be living by that adage. But in the last several years we have seen a significantly more confrontational style filter down to the grassroots issue activists behind any number of organizations and causes – threats to boycott stores (see Hobby Lobby Stores) or even entire states (North Carolina and not too long ago Georgia) over laws or stances taken; calls for individuals to be fired from their jobs or otherwise “economically disciplined” for expressing opinions deemed “unacceptable” (such as Brendan Eich’s ouster from Mozilla for donating to the California Proposition 8 campaign after calls from activists or Atlanta Fire Chief Kelvin Cochran’s dismissal for expressing his disapproval of same-sex marriage in a religious book he published); and even instances of physical altercations or harassment (picketing the homes of politicians’ families, or attempting to physically disrupt events or attendees). Now we may see that style of politics become a tool by which charities and other exempt organizations challenge state-level disclosure requirements that would force them to disclose donor information. ...

Americans for Prosperity Foundation (AFP) won just such a challenge when Judge Manuel Real of the U.S. District Court for the Central District of California held California’s requirement for charities to file annually with the Attorney General (AG) their unredacted Form 990 Schedule B (Schedule of Contributors) to be unconstitutional as applied to AFP. Judge Real permanently enjoined the AG from requiring or demanding AFP’s Schedule B information.

The primary basis for the decision was extensive trial evidence of harassment and intimidation that supporters of AFP and those affiliated with it have experienced. Though Judge Real only recounted a few of the incidents established at trial, the details sound like much of the activism that is becoming more prevalent: An IT contractor took to social media to condemn AFP (and suggest that he could easily slit the throat of AFP’s CEO) and was later found in the garage photographing license plates; protestors at an event cut down the tent being used for the function while attendees were still inside; major donors have received numerous death threats and had their business boycotted once their affiliation has become known; the Koch brothers, long-time supporters have been threatened, along with their families, including their grandchildren (who are all still minors). As Judge Real put it in conclusion, “the Court finds that AFP supporters have been subjected to abuses that warrant relief….” ...

In the end, Judge Real’s opinion may work to open the floodgates for other organizations that have been targeted for various forms of harassment or abuse. Several states have either instituted, revived, or proposed requirements that charitable organizations file their Schedule B information with state officials. And while California has been the focal point of challenges, the U.S. District Court for the Southern District of New York has upheld a similar New York requirement against a facial challenge (see Citizens United v. Schneiderman). While the initial failure of those facial challenges may have dampened litigation at first, this new decision will certainly result in additional interest in litigating these disclosure requirements, even if it must be done on an organization-by-organization basis. For now, we can only wait and see what, if anything, the Ninth Circuit does on appeal.

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May 9, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

TaxProf Blog Weekend Roundup

Sunday, May 8, 2016

TIGTA:  IRS Mischaracterizes 88% Of Hobbies As For-Profit Businesses, Allowing Billions In Improper Loss Deductions

TIGTAThe Treasury Inspector General for Tax Administration has released Opportunities Exist to Identify and Examine Individual Taxpayers Who Deduct Potential Hobby Losses to Offset Other Income (2016-30-031):

The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its audit report of the Internal Revenue Service’s (IRS) methods of addressing taxpayers who take business tax deductions for activities not engaged in for profit. TIGTA found that the IRS can improve its methods for identifying high-income taxpayers who may be offsetting their income with “hobby losses” from unprofitable business activity.

The tax code allows taxpayers to deduct all ordinary and necessary expenses paid or incurred in carrying on a trade or business. However, in the “hobby loss” provision in the tax code, the IRS generally disallows business tax deductions for activities not engaged in for profit.

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May 8, 2016 in Gov't Reports, IRS News, Tax | Permalink | Comments (10)

The Top 5 Tax Paper Downloads

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

  1. [811 Downloads]  Lexisnexis® Guide to FATCA Compliance: Chapter 1, by Willliam Byrnes (Texas A&M) & Robert J. Munro (Texas A&M)
  2. [342 Downloads]  Ownership of the Means of Production, by E. Glen Weyl (Chicago) & Anthony Lee Zhang (Stanford)
  3. [307 Downloads]  The Law of the Platform, by Orly Lobel (San Diego)
  4. [271 Downloads]  The Panama Papers and Tax Morality, by Usman W. Chohan (University of New South Wales)
  5. [245 Downloads]  Trust Protectors: Why They Have Become 'The Next Big Thing', by Lawrence Frolik (Pittsburgh)

May 8, 2016 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

The IRS Scandal, Day 1095

IRS Logo 2Linda Beale (Wayne State), IRS Scrutiny of 501(c)(3)s:

As most everybody is aware by now, the IRS has been under considerable strain for a number of years from budget and staff reductions that have left it underfunded, understaffed, and under pressure.  This is part of the right's effort to "shrink the government to a bathtub and drown it."  If the main organization for helping Americans understand their tax obligations is understaffed, it is likely that many people will become irritated with the agency and blame it (and taxes) for all their problems.  If the main organization for enforcing the U.S. tax laws fairly has too few people to audit the most likely scoflaws and too little money to prepare guidance and rulings to make it harder for scofflaws to scoff at the law, then many people will become irritated with the agency and blame it (and taxes) for their problems while many other people (especially the privileged rich) will continue to scoff at the law by overstating their basis when they sell capital assets, hiding assets in tax havens, and just hiring lots of expensive tax attorneys and accountants to come up with schemes for wiggling through the loopholes in the Code to avoid more taxes.

And of course, if the main organization for ensuring that tax-exempt organizations are not abusing their tax exempt status by using "dark money" to allow the domestic elite and foreign powers to influence and control federal elections and legislation, then odds are the rich and elite and foreign powers will wield more and more influence and control over who gets elected and what kind of legislation they pass.  Odds are we will see even more of the kinds of absurd legislation disenfranchising the poor and minorities by making it harder to vote, harder to get a State-issued I.D. card, harder to wait in line for hours at the polls (if you will be fired for not reporting to work), etc.

None of this is any surprise.

None of it is good government.

All of it is supported by the current radicalized uber-right-wing Republican Party hacks that are running many state governments and hold the majority right now in the U.S. Senate and House of Representatives.

As the New York Times editorial board noted, "[c]laiming a 'social welfare' tax exemption has become a tool for powerful political operatives like Karl Rove, the Republican campaign guru.  His Crossroads GPS group, which has 501(c) status, has spent $330 million on ads and candidates since it was created in 2010."  See Editorial,  Dark Money and an I.R.S. Blindfold, New York Times (Apr. 28, 2016).  And of course, with all the ranting about it being a problem to pick a group with "Tea Party" or "Progressive" in their name for closer scrutiny (when any common sense analysis will tell you that such a group is quite likely to be engaged in forbidden lobbying activities), "the IRS has grown ever more gun-shy about enforcement."

So the latest bill wreaking havoc on democracy, put forward by Republican Peter Roskam in the House of Representatives, would eliminate the current law that requires those who donate more than $5000 to a nonprofit to be disclosed to the IRS (though redacted for public versions of organizations' tax forms)..  See, e.g., Richard Rubin, House Republicans Seek to Block IRS Collection of Non-profit Donor Data, Morningstar, Apr. 28, 2016. That means a foreign corporation or a foreign sovereign power could contribute enormous sums to shape the legislative and regulatory regimes in our country, and there would be NO WAY TO POLICE THE PROBLEM. 

Further, it is hard to understand why any donor to a tax-exempt organization should be entitled to anonymity.  The organization is able to avoid paying any taxes on the funds received, and--especially under the current malevolent eye from Congress towards the IRS--the IRS is hamstrung in enforcing the law against political campaigning with 501(c)(3) funds.  What we should do instead of allow complete anonymity and the power plays that encourages is the opposite:  the name of every donor who gives anything more than some de minimis threshold amount to any tax-exempt organization should be publicly available, and the amount given should be publicly available.  After all, if money is "speech", "speech" is supposed to be heard.  Remember the old saying about the tree that fell in the forest and whether there would even be any sound if there were no eardrum available to hear it.  That's certainly the case with speech.  If giving money is a form of speech, than the gift and giver shouldn't be hidden under a bushel but should be broadcast far and wide for anyone who wants to know.

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May 8, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (6)

Saturday, May 7, 2016

This Week's Ten Most Popular TaxProf Blog Posts

Galle:  Section 305 And The Roosting Chickens Of The Chan-Zuckerberg Initiative

FaecbookBrian Galle (Georgetown), Zuckerblogging, Part I:

Facebook this week informed its shareholders that it is planning to issue a stock dividend. Existing shareholders, including Zuckerberg, will receive two shares of a new class of non-voting common stock for each of their existing shares. Readers may recall that Facebook already has 2 classes of common stock, one providing each share with one vote, and a second (mostly held by Zuckerberg) providing much more voting power. The dividend raises both some interesting philanthropy issues as well as some interesting technical questions about Tax Code section 305 (if the idea of “interesting…section 305” is not an oxymoron).

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May 7, 2016 in Tax | Permalink | Comments (0)

ABA Tax Section May Meeting

The ABA Tax Section May meeting concludes today in Washington, D.C.  The full program is here.  Today's highlights are:

SedoPro Bono & Tax Clinics, Reflecting on Low Income Tax Clinics and Celebrating Professor Kathryn Sedo

This program will look back at low income tax clinics since their inception with a particular focus on retiring clinic Professor Kathryn Sedo of the University of Minnesota. Professor Sedo has been a part of the low income taxpayer community as one of the founders of one of the oldest clinics in the country. As she retires from her current position, we have the opportunity to look at the changes in the tax system as it relates to low income taxpayers over the course of her career and to look forward.

  • Frank DiPietro (Minnesota) (moderator)
  • Leslie Book (Villanova)
  • Keith Fogg (Harvard)
  • Peter Panuthos (Chief Special Trial Judge, U.S. Tax Court)

GideonPosthumous Presentation, 2016 Distinguished Service Award Recipient Ken Gideon

The Section of Taxation is pleased to honor Kenneth W. (“Ken”) Gideon as the recipient of its 2016 Distinguished Service Award in recognition for his distinguished career in recognition of his service to the profession, service to the government, and service to the Section. 

The Distinguished Service Award is the highest honor awarded by the Section of Taxation. The Award is given to individuals who have had a distinguished career in taxation and “who have provided an aspirational standard for all tax lawyers to emulate.” In the fall of last year, the Distinguished Service Award Committee unanimously selected Ken to be this year’s recipient. As is the custom of the Committee, the plan was to inform Ken of the Award at the Council Dinner during the January meeting in Los Angeles. Ken passed away unexpectedly on January 10, 2016, two weeks before the Los Angeles meeting. [See Michael Graetz, Farewell To Ken Gideon.]

Other Tax Profs with speaking roles today include:

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May 7, 2016 in ABA Tax Section, Conferences, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1094

IRS Logo 2The Daily Signal, Why Donors to Nonprofits Need to Be Protected From the IRS:

Congressional calls for the impeachment of IRS Commissioner John Koskinen are once again making headlines. In an interview with The Daily Signal, Cleta Mitchell, an attorney representing numerous conservative groups targeted by the IRS, explains why Koskinen should never have been appointed in the first place and why current laws need to be changed to protect donors to nonprofit groups from being targeted and audited by the agency.

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May 7, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Friday, May 6, 2016

Fate Of Energy Transfer/Williams Merger Turns On Differing Tax Opinions From Latham & Watkins, Cravath

ETWWall Street Journal, Energy Transfer Thinks Taxes Could Doom Its Deal With Williams:

The fate of Energy Transfer Equity’s troubled $32 billion tie-up with Williams may rest with the Internal Revenue Service.

That’s the message in a new securities filing from ETE that lays bare the growing tensions between the pipeline companies, whose proposed merger, struck last September after a yearlong pursuit, has been complicated by sliding oil prices and concerns over leverage. The filing covers perceived tax risks and dueling lawsuits between the companies and shows the depths of ETE’s concerns about the deal, summed up here: “ETE believes there is substantial risk that the merger will not be consummated.”

The main reason, according to ETE, is taxes.

Last month, ETE said its lawyers at Latham & Watkins LLP weren’t sure they could give a required opinion that the deal would be tax-free for investors, without elaborating. On Wednesday, ETE nodded at two potential pitfalls, both of which stem from the roundabout way this merger is structured. (Simply put, ETE is floating a new entity, Energy Transfer Corp., and buying shares of that entity for $6 billion in cash. ETC will give that cash, along with a lot of ETC shares, to Williams investors in exchange for their Williams stock.)

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May 6, 2016 in Tax | Permalink | Comments (0)

Weekly Tax Roundup

Weekly SSRN Tax Roundup

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May 6, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Weekly Student Tax Note Roundup

ABA Tax Section May Meeting

ABA Tax SectionThe ABA Tax Section May meeting continues today in Washington, D.C.  The full program is here.  Yesterday's highlight was the annual Laurence Neal Woodworth Memorial Lecture in Federal Tax Law and Policy on What Has the Tax Court Been Doing? An Update delivered by Senior Tax Court Judge James S. Halpern. Today's highlights are the two Teaching Taxation programs:

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May 6, 2016 in ABA Tax Section, Conferences, Tax | Permalink | Comments (0)

Coke Bottler's Merger Might Run Afoul Of New Anti-Inversion Rules

CokeBloomberg, Coke Bottler's Merger Might Lose Tax Gain to Inversion Rules, by Lynnley Browning:

When Coca-Cola Enterprises Inc. announced a merger with two overseas counterparts last August, the Atlanta-based bottler of Coke drinks in Western Europe said the deal had nothing to do with cutting its corporate tax bills.

Now, after the U.S. Treasury Department proposed tougher-than-expected regulations designed to prevent firms’ shifting profits offshore last month, the company has a different message.

In an April 11 securities filing, Coca-Cola Enterprises warned that one Treasury proposal, unveiled seven days earlier, could reduce the merger’s anticipated annual savings of as much as $375 million -- though it didn’t specify a new amount. Since the rule targets a tax-cutting technique known as “earnings stripping,” the company’s disclosure shows that tax savings were an important benefit of the merger all along, said Robert Willens, a tax and accounting consultant in New York. ...

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May 6, 2016 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1093

IRS Logo 2Linda Sugin (Fordham), Politics, Disclosure, and State Law Solutions for 501(C)(4) Organizations, 91 Chi.-Kent. L. Rev. ___ (2016):

Non-charitable nonprofit organizations are important political players, and they operate with little regulation and behind a veil of anonymity. The customary regulators of these organizations − the IRS and the FEC − are paralyzed by scandal and dysfunction, and have done nothing to address the problem of dark money in politics spawned by the Supreme Court’s 2010 decision in Citizens United v. FEC. This article considers whether state nonprofit law can fill the gap left by federal tax and election regulators. It describes the efforts taken by California and New York to limit the influence of out-of-state anonymous money in state elections, and considers the policies that states might pursue in regulating politicking by nonprofits under their jurisdiction.

This article argues that state nonprofit law regulation could be desirable if states are concerned with either (1) shielding charitable organizations from the taint of political nonprofits, or (2) protecting donors to social welfare organizations from unwittingly underwriting political activity. However, if states are primarily interested in equalizing political power, silencing out-of-state voices, or protecting voters from fraud, then state nonprofit law is a poor regulatory fit. While most demands for dark-money regulation focus on disclosing the identity of nonprofit donors, this article explains that the appropriate regulation depends on the policy that drives it. While it argues that states have legitimate nonprofit-law concerns and could experiment to pave the way for federal regulation, it ultimately concludes that state nonprofit law regulation is unlikely to have the scope or effectiveness necessary to address the problem created by Citizens United.

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May 6, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Thursday, May 5, 2016

Virginia Tax Review Publishes New Issue

Virginia Tax Review (2016)The Virginia Tax Review has published Vol. 35, No. 1 (Summer 2015):

May 5, 2016 in Scholarship, Tax | Permalink | Comments (0)

Brunson:  It Is Time For The IRS To Enforce The Prohibition On Campaigning By Churches

CHurchSamuel Brunson (Loyola-Chicago), Dear IRS, It Is Time to Enforce the Campaigning Prohibition. Even Against Churches, 87 U. Colo. L. Rev. 143 (2016):

In 1954, Congress prohibited tax-exempt public charites, including churches, from endorsing or opposing candidates for office. To the extent a tax-exempt public charity violated this prohibition, it would no longer qualify as tax-exempt, and the IRS was to revoke its exemption.

While simple in theory, in practice, the IRS rarely penalizes churches that violate the campaigning prohibition, and virtually never revokes a church’s tax exemption. And, because no taxpayer has standing to cuhallenge the IRS’s inaction, the IRS has no external imperative to revoke the exemptions of churches that do campaign on behalf of or against candidates for office.

This argment makes the normative case that, notwithstanding the IRS’s administrative discretion and the inability of taxpayers to challenge its nonenforcement in court, the time has come for the IRS to begin enforcing the campaigning prohibition.

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May 5, 2016 in Scholarship, Tax | Permalink | Comments (1)

Shay, Fleming & Peroni: Designing A 21st Century Corporate Tax

Florida Tax Review  (2015)Stephen E. Shay (Harvard), J. Clifton Fleming Jr. (BYU) & Robert J. Peroni (Texas), Designing a 21st Century Corporate Tax — An Advance U.S. Minimum Tax on Foreign Income and Other Measures to Protect the Base, 17 Fla. Tax Rev. 669 (2015):

The 21st Century has seen unprecedented levels of corporate tax aggressiveness and avoidance. This article continues our exploration of second best international tax reforms that would protect the U.S. corporate tax base and have some likelihood of adoption. In this case, we consider how a U.S. minimum tax on foreign income earned by a controlled foreign corporation should be designed to protect the United States against erosion of its corporate income tax base and to combat tax competition by low-tax intermediary countries. In the authors’ view, a minimum tax should be an interim levy that preserves the residual U.S. tax on foreign income, as distinguished from a final minimum tax that partially eliminates the U.S. residual tax. An interim minimum tax would be a significant improvement over current law and would more effectively limit incentives to seek low-taxed foreign income while ameliorating pressure to retain excess earnings abroad.

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May 5, 2016 in Scholarship, Tax | Permalink | Comments (0)

The 'New Normal':  Number Of Americans Renouncing Their U.S. Citizenship Continues To Set Records

International Tax Blog, Over 1,000 Published Expatriates in 2016 Q1 — The New Normal:

Today the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the first quarter of 2016.

The number of published expatriates for the quarter was 1,158.  Only a few years ago, we would have been surprised by such a large quarterly number.  Now having over 1,000 published expatriates per quarter appears to be the new normal. 

Chart 1

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May 5, 2016 in Tax | Permalink | Comments (8)

Call For Corporate Tax Papers:  ClassCrits IX

Class Crits 2ClassCrits IX Call for Papers and Participation: The New Corporatocracy and Election 2016:

We invite panel proposals, roundtable discussion proposals, and paper presentations that speak to this year’s theme, as well as to general ClassCrits themes.  Proposal due: May 16, 2016.

As the U.S. presidential election approaches, our 2016 conference will explore the role of corporate power in a political and economic system challenged by inequality and distrust as well as by new energy for transformative reform.

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May 5, 2016 in Conferences, Legal Education, Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1092

IRS Logo 2Kristin E. Hickman (Minnesota), Pursuing a Single Mission (or Something Closer to it) for the IRS, 7 Colum. J. Tax L. ___ (2016):

It is often said that taxes are the lifeblood of government. As the nation’s tax collector, the IRS serves a critical function without which the federal government would cease to function. Yet the IRS is an agency in crisis—mired in scandal, chronically underfunded, overreliant on automation, and failing to provide taxpayers with the support they need to comply with the tax laws and pay their taxes. This Essay argues that a major contributor to the IRS’s woes is Congress’s penchant in recent decades for utilizing the IRS to administer social welfare and regulatory programs that are only tangentially related to the IRS’s traditional revenue raising mission.

This Essay examines the consequences of that choice and calls for reforming the IRS’s organizational structure to segregate the revenue collection function from the biggest and most politically fraught social welfare and regulatory programs that currently fall within the IRS’s jurisdiction. To that end, this Essay suggests giving serious consideration either to spinning off several non-revenue raising programs from IRS oversight or to splitting up the IRS altogether and distributing its many functions among other new or existing agencies.

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May 5, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Wednesday, May 4, 2016

Hemel:  The President's Power To Tax

Daniel Hemel (Chicago), The President's Power to Tax, 102 Cornell L. Rev. ___ (2016):

President Obama and his predecessors have used their regulatory authority to implement significant elements of their domestic policy agendas across a wide range of issue areas—including the environment, immigration, labor, and health care. But recent administrations have been much less willing to exercise regulatory authority in the realm of tax. More precisely, recent administrations have been reluctant to take regulatory actions that raise revenue (although quite willing, in certain cases, to take regulatory actions that move the law in a taxpayer-friendly direction). This is not because the Executive Branch lacks the legal authority to adopt significant revenue-raising tax reforms via regulation: as this article demonstrates, the Executive Branch’s “power to tax” under existing statutes is broad. Nor is it because the President is satisfied with the tax status quo: recent Presidents have repeatedly asked Congress to amend the tax code via legislation. Yet in many cases, the change that the President asks Congress to make is a change that the Executive Branch already has authority to make on its own. What explains the reluctance of recent administrations to raise revenue through regulatory action?

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May 4, 2016 in Scholarship, Tax | Permalink | Comments (0)

California Is Bernie Sanders's Tax Nirvana: Top 1% Pay 48% Of Taxes

Los Angeles Times, When It Comes to Paying Taxes, California Is Bernie Sanders' Kind of State:

Bernie Sanders wags his finger and shouts that the richest 1% should pay their fair share. No one can argue they aren’t already in California, at least in state taxes. In fact, they’re forking over more than their fair share to Gov. Jerry Brown’s regime.

The latest figures have just been released, and the top 1% paid nearly half — 48% — of the state’s personal income taxes in 2014.

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May 4, 2016 in Tax | Permalink | Comments (6)

NY Times:  AG Dings Developer Aby Rosen For $7 Million In Unpaid Taxes On Art

HurstFollowing up on my previous posts:

New York Times, Developer Aby Rosen to Pay $7 Million in Suit Over Unpaid Taxes on Art:

Aby J. Rosen, the Manhattan real estate developer and art collector, is well known for exhibiting works from his collection at the landmark Seagram Building and at Lever House, both on Park Avenue, as well as at 530 Park Avenue, a 19-story residential condominium. He also has five pieces by Picasso in his Manhattan home, and a controversial, 33-foot-tall bronze sculpture of a pregnant woman with an exposed fetus on the grounds of his estate in Old Westbury, on Long Island.

That $2.5 million, 13-ton sculpture by Damien Hirst [right] is one of 200 artworks that have put Mr. Rosen at the center of another controversy — this one involving unpaid taxes.

The New York attorney general, Eric T. Schneiderman, announced a $7 million settlement with Mr. Rosen on Tuesday for failing to pay taxes on $80 million in artwork that he had bought or commissioned since 2002.

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May 4, 2016 in Celebrity Tax Lore, Tax | Permalink | Comments (1)

Puckett:  Structural Tax Exceptionalism

James M. Puckett (Penn State), Structural Tax Exceptionalism, 50 Ga. L. Rev. 1067 (2015):

This Article argues that it is misleading to declare the death of tax exceptionalism and that structural tax exceptionalism may have important benefits. Part II provides a brief historical overview of the rise of federal agency administration of statutes and especially tax laws. The history trends to detract from anti-tax and anti-agency rhetoric that counsel disempowering the Treasury Department and other administrative agencies from comprehensively enforcing laws and making policy in their relevant domains.

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May 4, 2016 in Scholarship, Tax | Permalink | Comments (1)

IRS To Hire 700 New Enforcement Agents

IRS Logo 2Wall Street Journal, IRS to Hire Up to 700 Enforcement Workers:

The Internal Revenue Service is hiring up to 700 employees for tax enforcement in what Commissioner John Koskinen calls the agency’s “first significant enforcement hiring in more than five years.”

In a memo to employees Tuesday, Mr. Koskinen said the IRS found money for the hiring—despite budget constraints—because of retirements, other departures and unspecified “efficiencies.” The first wave of hiring will begin in a few weeks and will be concentrated in the IRS department that monitors small businesses and the self-employed.

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May 4, 2016 in IRS News, Tax | Permalink | Comments (5)

Kwak:  Reducing Inequality With A Retrospective Tax On Capital

James Kwak (Connecticut), Reducing Inequality with a Retrospective Tax on Capital, 25 Cornell J.L. & Pub. Pol'y 191 (2015):

Inequality in the developed world is high and growing: in the United States, 1% of the population now owns more than 40% of all wealth. In Capital in the Twenty-First Century, the economist Thomas Piketty argues that inequality is only likely to increase: invested capital tends to grow faster than the economy as a whole, causing wealth to concentrate in a small number of hands and eventually producing a society dominated by inherited fortunes. The solution he proposes, an annual wealth tax, has been reflexively dismissed even by supporters of his overall thesis, and presents a number of practical difficulties. However, a retrospective capital tax — which imposes a tax on the sale of an asset based on its (imputed) historical values — can reduce the rate of return on investments and thereby slow down the growth of wealth inequality. A retrospective capital tax mitigates or avoids the administrative and constitutional problems with a simple annual wealth tax and can reduce the rate of return on capital more effectively than a traditional income tax.

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May 4, 2016 in Scholarship, Tax | Permalink | Comments (2)

The IRS Scandal, Day 1091

IRS Logo 2Forbes:  Members Of Congress Push To Shut Down IRS Forever, by Kelly Phillips Erb:

Shut down the Internal Revenue Service (IRS).

That’s the recommendation from the Republican Study Committee (RSC) to House Republicans. The proposal to shutter the IRS, together with other policy initiatives, were submitted by RSC Chairman Bill Flores (R-TX) to House Republican task forces for consideration.

As part of its proposal on tax reform, the RSC slammed the IRS, writing:

In its current form, the Internal Revenue Service (IRS) is at best an inefficient behemoth weighing down our economy. At its worst, the IRS has shown a capacity for outright corruption and political targeting.

The proposal went on to claim:

Under the Obama Administration, the IRS has illegally targeted conservatives. It has channeled millions of taxpayer dollars away from taxpayer assistance for employee bonuses. It has allowed taxpayer information to be compromised in a data breach. The IRS has even intentionally leaked confidential taxpayer information. Despite these facts, the president’s budget actually calls for increasing spending on the IRS by $1 billion.

The solution? “[T]he complete elimination of the IRS.” ...

That’s not to say that the news is all good. The IRS has been plagued by scandal. The tax exempt organization scandal, in particular, has left a bad taste in the mouths of many taxpayers. Concerns over security weaknesses and technology failures have made taxpayers understandably wary.

In response, Congress has hammered the federal agency by slashing the budget. In 2015, seven former IRS commissioners signed onto a joint letter to Congress speaking out against further reductions, noting “[o]ver the last fifty years, none of us has ever witnessed anything like what has happened to the IRS appropriations over the last five years and the impact these appropriations reductions are having on our tax system.” That same year, National Taxpayer Advocate Nina E. Olson noted that “the budget environment of the last five years has brought about a devastating erosion of taxpayer service, harming taxpayers individually and collectively.” ...

And interestingly, for all that Congress wants to complain that IRS is spending too much money and has too much power, Congress keeps handing over responsibilities to the agency. Obamacare? Up to IRS to administer. The Foreign Account Tax Compliance Act (called FATCA)? The IRS administers that, too. That new passport law? IRS. Even as Congress decries the agency, they’re the very ones guaranteeing the need for its existence.

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May 4, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Tuesday, May 3, 2016

Prasad Presents Neoliberalism And The 1981 Reagan Tax Cuts Today At NYU

PrasadMonica Prasad (Northwestern) presents The Popular Origins of Neoliberalism in the Reagan Tax Cut of 1981, 24 J. Pol'y Hist. 351 (2012), at NYU today as part of its Tax Policy Colloquium Series hosted by Daniel Shaviro and Chris Sanchirico:

The debt when Reagan entered office was just over $900 billion, not historically high in constant dollars or as a percent of GDP, but by the time Reagan left office it had almost tripled in nominal terms, and in percent of GDP it had gone from 33.4 percent to 51.9 percent. At the end of his term, the debt stood at $2.6 trillion, with a substantial portion of it contributed by Reagan's own policies: a mountain over 160 miles high in loose or tight bricks.

The irony is that the policy that accelerated the growth of that debt was the very policy Reagan was promoting in that first address, the Economic Recovery Tax Act of 1981 (ERTA). This tax cut remains the largest tax cut in American history. Of course, spending increases were also necessary to the creation of the new mountain of debt, but spending has increased many times over the course of the century. What was historically new was the policy of not raising taxes to match those spending increases.

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May 3, 2016 in Colloquia, Scholarship, Tax | Permalink | Comments (1)

The Estate Tax Is Destroying The Environment

Estate TaxBrian Seasholes (Reason Foundation), The Ecologically Destructive Tax: How the Federal Estate Tax Is Ecologically Harmful and How to Fix It:

The ongoing debate over the federal estate tax tends to focus on the tax’s economic impacts, such as on small businesses, employment and capital formation, as well as the very small percentage it constitutes of federal tax receipts. Less well known, however, is the significant harm the estate tax does to the ecology of the United States.

Private lands, especially large, intact pieces of land, are critically important to ecological conservation. Conversely, land broken into smaller pieces is generally of less ecological value. Unfortunately, the estate tax results in private land being broken up, subdivided and sold. Over the past several decades it has become increasingly apparent that:

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May 3, 2016 in Scholarship, Tax, Think Tank Reports | Permalink | Comments (12)

Thimmesch:  Taxing Honesty

Adam B. Thimmesch (Nebraska), Taxing Honesty, 118 W. Va. L. Rev. 147 (2015):

It is commonly accepted that state use taxes, most notably those that are due on Internet purchases, are largely unenforceable against individual consumers. Consistent with that view, states have focused their enforcement efforts on forcing retailers to collect those taxes at the point of sale, and taxpayers have maintained nearly complete indifference toward remitting the tax of their own accord. This combination of factors has transformed the state use tax into a de facto tax on honesty — a tax with which only our most principled, risk-averse, or perhaps foolish even attempt to comply. The current structure of these taxes is further troubling because compliance is a practical impossibility. Unfortunately, however, academic attention to the state use tax has focused almost exclusively on whether and under what conditions states should be allowed to compel vendors to collect that tax.

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May 3, 2016 in Scholarship, Tax | Permalink | Comments (0)

Crawford:  The Best Estate & Gift Tax Articles Of 2014 & 2015

Bridget J. Crawford (Pace), Two Years' Worth of Estate and Gift Tax Law Review Articles, 151 Tax Notes 215 (Apr. 11, 2016):

Legal scholarship produced by law professors can be of great use to tax practitioners and policymakers. In the Tax Notes tradition of publishing "Law Review Summaries," Professor Crawford reviews five estate and gift tax articles from each of 2015 and 2014 that were published in student-run law reviews and which are likely to be of interest to tax professionals.

The articles from 2015 are:

  1. Steven J. Arsenault (Charlotte), Grantor Retained Annuity Trusts: After $100 Billion, It's Time to Solve the Great GRAT Caper, 63 Drake L. Rev. 373 (2015)
  2. Stephanie R. Hoffer (Ohio State), Making the Law More ABLE: Reforming Medicaid for Disability, 76 Ohio St. L.J. 1255 (2015)
  3. Sergio Pareja (New Mexico), How the Über-Wealthy Benefit From Investing Outside Retirement Plans (and How You Can Too), 64 Cath. U. L. Rev. 563 (2015)
  4. Margaret Ryznar (Indiana-Indianapolis), The Odd Couple: The Estate Tax and Family Law, 76 La. L. Rev. 523 (2015)
  5. Reid Kress Weisbord (Rutgers), Trust Term Extension, 67 Fla. L. Rev. 73 (2015)

The articles from 2014 are:

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May 3, 2016 in Scholarship, Tax | Permalink | Comments (0)

WSJ:  Tax Breaks For Twitter Bring Benefits And Criticism

Twitter (2014)Wall Street Journal, Tax Breaks for Twitter Bring Benefits and Criticism:

Lucho Cabrera, a 53-year-old formerly homeless man, turned to an unlikely place during his recent hunt for affordable housing: a $3 million community center built by Twitter across from the social media giant’s sleek art deco headquarters.

The NeighborNest center exists because the city five years ago struck deals with tech companies to move to the gritty Tenderloin area in exchange for tax breaks particularly attractive to start-ups. Twitter, Zendesk, Spotify and others snapped up new headquarters buildings, turning a dilapidated commercial strip known as Mid-Market into a new tech hub replete with hip espresso cafes and artisanal lunch joints.

For low-income residents such as Mr. Cabrera, who now get free technology training and child care at the community center, the corporate neighbors are welcome. “You hear stuff on Twitter taking over,” Mr. Cabrera said. “Hey, these people are helping us.”

Across the U.S., tensions over gentrification have given rise to community benefits agreements, which seek concessions from developers in exchange for community support for their projects. Activists hail such agreements when they benefit those likely to be displaced by neighborhood change.

But critics of the San Francisco tax breaks say they have cost the city revenue without bringing enough concrete benefits to the community. Advocates for the poor also say the Tenderloin’s redevelopment threatens to strip away one of the last redoubts for low-income residents in an ever-wealthier city.

May 3, 2016 in Tax | Permalink | Comments (0)

Alaska’s Folly:  Politicians Contemplate A State Income Tax

WealthWall Street Journal op-ed:  Alaska’s Folly: Politicians Contemplate a State Income Tax, by Stephen Moore (Heritage Foundation):

The first and only state to ever abolish an existing income tax was Alaska. It happened in 1980 when the oil boom in Prudhoe Bay and the construction of the Alaska pipeline brought gushers of windfall-drilling royalties and fees into the state coffers in Juneau.

The combination of high-paying energy jobs and the lure of no income tax made Alaska an economic dynamo and a net importer of people for most of three and a half decades. It is safe to say that few were moving to Alaska for the weather.

But the crash in oil prices to as low as $30 a barrel in January (it’s now about $40) has shrunk state revenues by two-thirds and left Alaska in a financial crisis. To fill the funding gap, Gov. Bill Walker, a left-leaning independent, wants major new taxes on the already-ailing energy industry and even worse: to revive the income tax.

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May 3, 2016 in Book Club, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1090

IRS Logo 2Reuters, Conservatives in Congress Urge Shutdown of IRS:

It's a U.S. taxpayer's dream: make the Internal Revenue Service go away, and the largest conservative group in Congress is endorsing just that.

The Republican Study Committee, which counts over two-thirds of House of Representatives Republicans as its members, called recently for "the complete elimination of the IRS."

The committee's support for this idea, once confined to the fringes of conservative ideology, suggests it is more widely accepted on Capitol Hill than ever. But many in Washington, including some Republicans, have trouble taking it seriously. ...

It was unclear how House Speaker Paul Ryan would treat the study committee's proposal in drafting a party policy agenda ahead of the Republican convention in Cleveland in July. "The speaker welcomes input from the RSC and all members of our conference," said Ryan spokeswoman AshLee Strong. Ryan has sidestepped calls for abolishing the IRS in the past, while frequently criticizing the agency.

Washington Post editorial, Congress Should Let the IRS Do Its Job, Not Tie Its Hands:

“The beatings will continue until morale improves,” a famously ironic phrase of unknown origin, aptly describes the Republican House approach to the Internal Revenue Service.

The House has passed a series of sniping, counterproductive measures picking on the IRS. One would limit how it spends the user fees it collects. Another would freeze hiring at the understaffed agency until it obtains certification that no one there has major tax debt. The dumbest would mandate that no one at the IRS could get a bonus until customer service improves.

But who is responsible for the decline of customer service at the IRS? House Republicans. The IRS budget is $500 million below its level in 2010 , the year that Republicans won control of the House. It has been forced to shed 17,000 workers. Meanwhile, its responsibilities have increased. More people are filing taxes. The agency has to administer key parts of the Affordable Care Act. Cyberthreats have skyrocketed, including instances of identity theft.

Hollowing out the IRS has been one of the most foolish policies the GOP majority has pursued, as our columnist Catherine Rampell has illustrated. Tax cheats are encouraged and rewarded. Performing fewer audits cost the government $8 billion in 2015. ...

April is synonymous with taxes, so it is little surprise that Republicans chose last month to harry the IRS, among the least-loved parts of government. But the solution to the IRS’s problems is not more punishment, particularly of the sort that is likely to inhibit its ability to hire competent employees. The answer is for lawmakers to give the agency the money it needs to do its job. The country relies on a mostly voluntary system of tax compliance. If respect for and cooperation with that system decline, the government will lose the very revenue Congress expects the IRS to collect — and on which lawmakers’ budgets depend.

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May 3, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Monday, May 2, 2016

NY Times:  One Top Taxpayer Moved, And New Jersey Shuddered

New York Times:  One Top Taxpayer Moved, and New Jersey Shuddered, by Robert Frank:

Our top-heavy economy has come to this: One man can move out of New Jersey and put the entire state budget at risk. Other states are facing similar situations as a greater share of income — and tax revenue — becomes concentrated in the hands of a few.

Last month, during a routine review of New Jersey’s finances, one could sense the alarm. The state’s wealthiest resident had reportedly “shifted his personal and business domicile to another state,” Frank W. Haines III, New Jersey’s legislative budget and finance officer, told a State Senate committee. If the news were true, New Jersey would lose so much in tax revenue that “we may be facing an unusual degree of income tax forecast risk,” Mr. Haines said.

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May 2, 2016 in Tax | Permalink | Comments (2)

The Evolution of Wealth Inequality: The Role of Skills, Taxes And Institutions

Barıs Kaymak (Université de Montréal) & Markus Poschke (McGill University), The Evolution of Wealth Inequality Over Half a Century: The Role of Skills, Taxes and Institutions:

Over the last 50 years, the US economy saw significant changes in its fiscal structure. Notable among these are the introduction and expansion of social security programs and Medicare, and the transformation of the tax system. These institutional changes took place against a backdrop of developments in the technology of production that increasingly favored skilled workers. In this paper, we analyze how the interplay between these institutional and technological factors might have shaped the distributions of income, wealth, consumption and welfare. We find that while changes in income inequality are mostly attributable to technological factors, the increase in wealth inequality has further been compounded by the expansion of social security and Medicare, which have reduced saving incentives for retirement, in particular for low and middle income groups. As a result, they have substantially increased wealth concentration in US. Results suggest that approximately 25% of the rise in the share of wealth held by the wealthiest 1% is explained by larger transfers to senior population.

Estate Tax 1

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May 2, 2016 in Scholarship, Tax | Permalink | Comments (2)

Borden:  Reforming REIT Taxation (Or Not)

REITBradley T. Borden (Brooklyn), Reforming REIT Taxation (Or Not), 53 Hous. L. Rev. 1 (2015):

Tax law treats the income of real estate investment trusts (REITs) differently from the income of regular corporations. Income distributed by regular corporations is subject to an entity-level tax and a shareholder-level tax, while taxable income distributed by REITs is subject to tax only at the shareholder level. To qualify for that single-level of tax, REITs must hold primarily real estate assets, and their income must be primarily from such assets. After being a relatively insignificant part of the economy for the first three decades of their existence, REITs have become relevant over the last twenty years, with the market capitalization of publicly traded REITs eclipsing 5% of U.S. GDP at the end of 2014. Reports about REITs appear frequently in major media outlets, with an emphasis on corporate-tax-base erosion that results from REIT taxation. Calls for REIT reform have been answered with proposed legislation that would change various aspects of REIT taxation. Recent work in this area shows that even though REITs do erode the corporate tax base, the requirement that they distribute income and the higher tax rates of REIT shareholders offset corporate-tax-base erosion and minimize the tax-revenue effects of REIT taxation.

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May 2, 2016 in Scholarship, Tax | Permalink | Comments (0)

Sen. Hatch Demands Release Of Secret Reagan-Era DOJ Tax Memo Supporting Obama's Expansive Use Of Presidential Power

Washington Times, Orrin Hatch Demands Secret Memo That’s Aided Obama Executive Actions:

President Obama’s unilateral pen-and-phone approach to governing has been aided by a decades-old secret memo that allows him to avoid economic scrutiny of some of the most intrusive rules and regulations his administration has issued, a top senator said Thursday.

Now Sen. Orrin G. Hatch, Utah Republican and chairman of the Finance Committee, has demanded Treasury Secretary Jacob Lew release the 1983 memorandum of understanding and defend the Reagan-era policy that has let Mr. Obama pursue changes on everything from corporate taxes to Obamacare without first giving a full heads-up to Congress.

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May 2, 2016 in Gov't Reports, Tax | Permalink | Comments (1)

LeBron James Pays All Of His Social Security Taxes Before Halftime Of His First Game

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May 2, 2016 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

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May 2, 2016 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1089

IRS Logo 2Breitbart, Judge Denies Kamala Harris Koch Brothers’ Donor List:

A conservative advocacy group backed by the Koch brothers won a First Amendment victory this week denying California Attorney General Kamala Harris access to the names of conservative nonprofit members and contributors.

Harris, the California Attorney General and a Democratic candidate for outgoing Senator Sen. Barbara Boxer’s Senate seat, Harris has been attempting to overturn post-Watergate reforms to the Internal Revenue Code designed to protect confidential federal tax return information by demanding access to the names of contributors to conservative nonprofits.

The Koch Brothers-backed Americans for Prosperity Foundation (AFPF) and two other nonprofits filed lawsuits in the Central District Court in Los Angeles alleging Harris had violated the First Amendment by requiring charities that wanting to solicit contributions from Californians to disclose to the State of California all donors anywhere in the United States listed on the nonprofit’s IRS tax return Schedule B. Ms. Harris was also alleged to have attempted coercion to acquire donors’ names by threatening denial of permits and demanding huge fines for failure to comply. ...

As a result of a long history of racist and political bias, Congress passed a number of laws to ensure all charity donor information on Schedule B is protected as confidential. The federal tax code currently includes a regime of control and monitoring over state attorneys general, when they are granted access to donors’ names for legitimate law enforcement purposes. Violation by state officials is subject to civil and felony penalties.

The conservative nonprofits claimed there was a substantial risk Ms. Harris and/or her staff would leak this confidential data to their ideological opponents and her allies. The nonprofits cited various acts of lawlessness and law-breaking exposed by congressional investigators regarding Lois Lerner’s IRS staff leaking the National Organization for Marriage’s Schedule B donor information of the to their opponents. ...

Despite Harris saying she plans to appeal the court’s ruling, the issue may become moot with the U.S. House of Representative’s Ways and Means Committee passing a bill on April 28 titled Preventing IRS Abuse and Protecting Free Speech Act on a party-line vote, which would eliminate what Republicans dubbed a “superfluous IRS form, known as the Schedule B, which the IRS has used to improperly target tax-exempt organizations.”

Democrats voted against the bill, claiming that the review by the IRS is critical to ensure foreign funds do not covertly enter U.S. election politics.

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May 2, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

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