TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Thursday, November 27, 2014

What Tax Profs Are Thankful For

Thanksgiving
  • Jordan Barry (San Diego):  "I have so much to be thankful for. I am thankful for my brilliant and beautiful wife Emily, my loving family, and my wonderful friends. I’m also thankful for my job—and for tenure, which I received this past year. "
  • Paul Caron (Pepperdine):  "I am thankful for my beautiful wife, daughter, son, and dog, and that three of them are gainfully employed."
  • Mirit Eyal-Cohen (Alabama):  "This year I am grateful for the colleagues I have had in the past few years and my new colleagues at the present."
  • Bridget Crawford (Pace):  "Democracy, the right to peaceful protest, and university presses."
  • Cliff Fleming (BYU):  "In August 2011 my wife Linda learned that she had aggressive uterine cancer and that if she proved to be in the wrong tail of the bell curve, she would pass within 12 months. So we consider ourselves very blessed that we were able to celebrate our 50th wedding anniversary in June 2014 and that Linda is well enough to have traveled to Europe twice with me in 2014 and now to be preparing for a full-bore, big family Thanksgiving dinner. We live on the bubble between quarterly MRIs but are grateful for each additional day."
  • Victoria Haneman (Concordia):  "I am thankful for so many things in 2014: publication of Making Tax Law with co-author Dan Berman, a new position at a school with incredibly engaged students and a great selection of farm-to-table restaurants, and a baby girl on the way."
  • David Hasen (Colorado):  "I give thanks that a holy God (Isaiah 6:3-5) provides a way of salvation for us in His Son (Romans 10:9)."
  • Stephanie Hoffer (Ohio State):  "I am so grateful for my wonderful colleagues and my happy little family!"
  • Sagit Leviner (Ono):  "I am thankful for my little pumpkin."
  • Francine Lipman (UNLV):  "Thankful to be at UNLV, where we embrace diversity and understand that education is the key, door, path, and answer."
  • Ed Lyons (Oklahoma City):  "I am thankful because the more I focus my mind on the goods and the good people that surround me, the more they seem to multiply: 'For to every one who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away' (Matthew 25:29)."
  • Jim Maule (Villanova):  [See here.]
  • John Plecnik (Cleveland State):  "I am thankful for the chance to serve my students at Cleveland State as their professor, and my neighbors in Willoughby Hills as their Councilman."
  • Richard Winchester (Thomas Jefferson):  "I am thankful for the students who appreciate the work that I do."

November 27, 2014 in Legal Education, Tax | Permalink | Comments (0)

Taxing Two Thanksgiving Day Gentlemen

TwoForbes:  Taxing Two Thanksgiving Day Gentlemen, by Robert W. Wood:

A central theme of the Bible is that it is better to give than to receive, even when you give up a great deal. Two Thanksgiving Day Gentlemen, a short story masterpiece by O. Henry, gives this theme a twist. A vagabond—today we would call him homeless—is feted each Thanksgiving Day to a grand dinner in a posh New York eatery by a successful businessman. But on this Thanksgiving Day, each man hides his true circumstances.

The businessman is down on his luck so starves for two days in order not to disappoint the vagabond. Ironically, the vagabond is flush, his stomach bursting from two other holiday meals from other well-wishers. Forcing down each bite, he plays along knowing how important this ritual is to his kindly rich benefactor. Only O. Henry could make us feel what each feels as we smile ruefully at the comedy playing out.

In this crowdfunding era, individual acts of kindness still count, even if they don’t produce a tax break. That’s right, the charity the two Thanksgiving gentlemen exchange isn’t tax deductible, since you can’t give directly and get a deduction.

Continue reading

November 27, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

The IRS Scandal, Day 567

IRS Logo 2CP Politics:  IRS Scandal a Priority for New House Oversight Committee Chair:

Rep. Jason Chaffetz, R-Utah, will focus on the IRS scandal as the House's new head executive watchdog. He was appointed as the next chairman of the House Oversight and Government Reform Committee on Tuesday.

Replacing the term-limited Rep. Darrell Issa, R-Calif., the 47-year-old Chaffetz will now chair the committee that has been a leading force behind the House investigation into the scandal involving the Internal Revenue Service's targeting of conservative and Christian groups. ...

Chaffetz' appointment could spell continued trouble for the IRS. Fox News reported that Chaffetz "vowed" to make the probe into the IRS's practice of stalling 501(c) tax-exempt applications of conservative and religious political action groups the "centerpiece of his chairmanship."

Along with Issa's leadership, Chaffetz has been an influential part of the Committee's IRS investigation. In the Spring, Chaffetz called for an independent special prosecutor when the IRS announced that emails from IRS Director of Exempt Organizations Unit, Lois Lerner, had been lost in a 2011 hard drive and no backup copies were made to turn over for review.

Chaffetz said he sees a pattern in the coincidental loss of evidence when it comes to federal agencies turning over documents when pressed in investigations.

"This is a recurring theme, from Fast and Furious, right down to Benghazi and now this IRS. It's the same basic drumbeat," Chaffetz told Sean Hannity earlier this year. "I think they are trying to play out the clock."

Numerous conservative political groups have accused the IRS of stalling their tax-exempt applications for political reasons. When a political action group does not receive tax-exempt status, potential donors can not be guaranteed that their donations will be eligible for tax write-offs. The IRS' stalling of the applications has cost groups thousands in donations and grants, while other groups have have not been able to survive. A communications director for a Texas-based conservative group told the Christian Post in October that the IRS's stalling cost his group $80,000 in donations and grants.

"The IRS, more than anybody else, cannot be a political organization. But is what it looks like it is has been like lately," Chaffetz told Fox News' Sunday Morning Futures with Maria Bartiromo in June. ...

The House Ways and Means Committee, which is also involved in the IRS investigation, will also have a new chair as Rep. Paul Ryan, R-Wis., was appointed as the committee's chairman on Tuesday. In a statement, Ryan said his committee will work to "hold the IRS accountable."

Continue reading

November 27, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Wednesday, November 26, 2014

Are You a Jerk at Work?

Columbia Press Release,  Are You Seen as a Jerk at Work? A New Study Reveals That Many People Are Oblivious to How They Come Across to Counterparts and Colleagues:

The JerkWhen Jill Abramson was ousted from her position as the executive editor of The New York Times, it was reported that she was, among other things, too “pushy.” But did Abramson—who has also been described by the media as “polarizing” and “brusque”—know during the course of her tenure that others viewed her as being overly assertive? A new study from the Columbia Business School suggests that there’s a great chance she didn’t.

“Finding the middle ground between being pushy and being a pushover is a basic challenge in social life and the workplace. We’ve now found that the challenge is compounded by the fact that people often don’t know how others see their assertiveness,” said Daniel Ames, professor of management at Columbia Business School and co-author of the new study. “In the language of Goldilocks, many people are serving up porridge that others see as too hot or too cold, but they mistakenly think the temperature comes across as just right—that their assertiveness is seen as appropriate. To our surprise, we also found that many people whose porridge was actually seen as just right mistakenly thought their porridge came off as too hot. That is, they were asserting themselves appropriately in the eyes of others, but they incorrectly thought they were pushing too hard.”

Continue reading

November 26, 2014 in Legal Education, Tax | Permalink | Comments (1)

Hoenig: What's Wrong With Trafficking in NOLs?

Tax Analysys Logo (2013)Mark Hoenig (Weil, Gotshal & Manges, New York), Trafficking in Net Operating Losses: What's So Bad?, 145 Tax Notes 919 (Nov. 24, 2014):

Hoenig examines the almost century-long history of Congress’s efforts to allow tax losses and limit their transfer. He explores the rationale for those efforts, assesses the system now in place, and asks whether an alternative set of rules might better serve policy and the economy.

November 26, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0)

The IRS Scandal, Day 566

IRS Logo 2Washington Examiner:  2,500 New Documents ID'd in White House-IRS Taxpayer Harassment Cases:

In a shocking revelation, the Treasury Inspector General has identified some 2,500 documents that “potentially” show taxpayer information held by the Internal Revenue Service being shared with President Obama’s White House.

The discovery was revealed to the group Cause of Action, which has sued for access to any of the documents. It charges that the IRS and White House have harassed taxpayers.

In an email from the Justice Department’s tax office, an official revealed the high number of documents, suggesting that the White House was hip deep in probes of taxpayers, likely including conservatives and Tea Party groups associated with the IRS scandal.

Power Line:  The IRS Scandal Rears Its Head:

The Obama Administration’s IRS scandal is multi-faceted. In addition to the persecution of conservative non-profits by Lois Lerner et al., the question has been percolating for some years whether Obama’s IRS has transferred confidential taxpayer information to Obama’s White House in violation of federal criminal laws. The issue first arose when Austin Goolsbee of the president’s Council of Economic Advisers told reporters that he had information about Koch Industries that could only have come, illegally, from confidential IRS files. When questions were asked, the administration immediately clammed up.

Years later, the judicial system may be poised to expose another layer of Obama corruption. A group called Cause of Action began a Freedom of Information Act lawsuit against the Department of the Treasury, and for several years, your taxpayer dollars have funded the administration’s cover-up.

But nothing lasts forever, and a federal court in Washington, D.C. has finally overruled the Treasury Department’s frivolous objections, and ordered Treasury to respond to Cause of Action’s request for documents. That request relates to the Department’s Inspector General’s investigation–which began a long time ago, and probably has long been concluded–and asks for “[a]ll documents pertaining to any investigation by [TIGTA] into the unauthorized disclosure of [26 U.S.C.] §6103 ‘return information’ to anyone in the Executive Office of the President.”

That is an extraordinarily narrow request for documents which, one would think, could have been responded to in a few hours. But the administration’s evasion has gone on for years. Now that the court has ordered the administration to respond, its lawyers have asked for more time

Cause of Action:  Press Release:

Monday the Treasury Inspector General for Tax Administration (TIGTA) informed Cause of Action that there exist nearly 2,500 potentially responsive documents relating to investigations of improper disclosures of confidential taxpayer information by the IRS to the White House. This disclosure, coming only after Cause of Action sued TIGTA over its refusal to acknowledge whether such investigations took place, and after the Court ordered TIGTA to reveal whether or not documents existed, signals that the White House may have made significant efforts to obtain taxpayers’ personal information. This disclosure, following on the heels of TIGTA’s admission that it recovered 30,000 “lost” Lois Lerner emails, renews Cause of Action’s concerns about the decaying professionalism of, and apparent slip into partisanship by, IRS’s senior leadership.

Cause of Action will continue to pursue the truth and to work for IRS accountability.

Continue reading

November 26, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Tuesday, November 25, 2014

Alarie Presents Policy Preferences and Expertise in Canadian Tax Adjudication Today at Columbia

AlarieBenjamin Alarie (Toronto) presents Policy Preferences and Expertise in Canadian Tax Adjudication, 62 Canadian Tax J. ___ (2014) (with Andrew Green (Toronto)), at Columbia today as part of its Tax Policy Colloquium Series hosted by Alex RaskolnikovDavid Schizer, and Wojciech Kopczuk:

Both taxpayers and governments struggle to stay on top of the various complex sources of tax law and to apply them in a myriad of different contexts. Given the potential for confusion and disagreement (not to mention the sometimes very large financial stakes involved) it would make sense to have a process for taxpayers to appeal government decisions to an expert body that can provide authoritative, reasoned and rational solutions to tax disputes. For this reason Canada, like the United States, has a specialized tax court dedicated to hearing appeals from decisions of the tax administration. Yet there is some evidence in both Canada and the US that judges in tax cases may be influenced by their own personal policy preferences or other factors extraneous to the “true” legal merits in deciding appeals from decisions of the tax administration. This paper examines in more detail appeals from tax assessments in Canada to understand the relative influence of judicial tax expertise and the policy preferences of judges on appeals to the Tax Court of Canada and the Federal Court of Appeal.

Our analysis reveals three main results: (1) policy preferences of judges matter, but not that much; (2) resources matter — a lot; and (3) there are dynamics relating to affirmation of appeals that are difficult to explain, although a desire to avoid the apprehension of bias is possible.

Continue reading

November 25, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

TIGTA: IRS Still Has Not Taken Necessary Steps to Prevent Billion Dollar Prisoner Tax Fraud

TIGTA The Treasury Inspector General for Tax Administration today released Prisoner Tax Refund Fraud: Delays Continue in Completing Agreements to Share Information With Prisons, and Reports to Congress Are Not Timely or Complete (2014-40-091):

Refund fraud associated with prisoner Social Security Numbers remains a significant problem for tax administration. The number of fraudulent tax returns filed using a prisoner’s Social Security Number that were identified by the IRS increased from more than 37,000 tax returns in Calendar Year 2007 to more than 137,000 tax returns in Calendar Year 2012. The refunds claimed on these tax returns increased from $166 million to $1 billion. ...

TIGTA found that the IRS has not yet shared fraudulent prisoner tax return information with Federal or State prison officials. TIGTA also found that the required annual prisoner fraud reports to Congress are not timely and that the reports do not address the extent to which prisoners may be filing fraudulent tax returns using a different individual’s SSN. TIGTA also followed up on a condition identified in a past review and found that IRS processes still do not ensure that all tax returns filed using a prisoner Social Security Number are assigned a prisoner indicator.

Figure 1

Continue reading

November 25, 2014 in IRS News, Tax | Permalink | Comments (0)

Who Pays for Employee Perks at High-Tech Companies?

CBS Moneywatch, Who Pays for Employee Perks at High-Tech Companies?:

Google MealBeginning in the 1990s, the high-tech industry has gained a reputation for offering employees not only generous pay, but also lavish, and even outlandish, perks. Massages, free food and even napping pods were but a few of the benefits companies lavished on engineers in hopes of retaining their talents.

Despite the dot-com bust and the Great Recession, financial crises that ushered in new age of austerity -- and massive layoffs -- in many sectors, tech companies today are showing even more largess with engineers and other key workers. In fact, there's a new job category: people in charge of devising newer and more effective treats for these elites. ...

The copious benefits tech players are bestowing is starting to raise questions about who foots the bill for the perks. The IRS, for one, has ruled that free food for employees represents a taxable benefit. A Wall Street Journal analysis concludes that workers who get two meals a day courtesy of their company could be on the hook for an additional $4,000 to $5,000 in taxes.

Continue reading

November 25, 2014 in Tax | Permalink | Comments (0)

Tax Farming: Experimental Evidence on Performance Pay for Tax Collectors

Adnan Q. Khan (London School of Economics), Asim I. Khwaja (Harvard) & Benjamin A. Olken (MIT), Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors:

Performance pay for tax collectors has the potential to raise revenues, but might come at a cost if taxpayers face undue pressure from collectors. We report the first large-scale field experiment on these issues, where we experimentally allocated 482 property tax units in Punjab, Pakistan into one of three performance-pay schemes or a control. After two years, incentivized units had 9.3 log points higher revenue than controls, which translates to a 46 percent higher growth rate. The scheme that rewarded purely on revenue did best, increasing revenue by 12.8 log points (62 percent higher growth rate), with little penalty for customer satisfaction and assessment accuracy compared to the two other schemes that explicitly also rewarded these dimensions. Further analysis reveals that these revenue gains accrue from a small number of properties becoming taxed at their true value, which is substantially more than they had been taxed at previously. The majority of properties in incentivized areas in fact pay no more taxes, but do report higher bribes. The results are consistent with a collusive setting in which performance pay increases collector's bargaining power over taxpayers, who either have to pay higher bribes to avoid being reassessed, or pay substantially higher taxes if collusion breaks down.

(Hat Tip: Bruce Bartlett.)

November 25, 2014 in Scholarship, Tax | Permalink | Comments (1)

The IRS Scandal, Day 565

IRS Logo 2Glenn Reynolds (Tennessee), More on Those 'Found' Emails From Lois Lerner:

I’m cynical enough to suspect that they’ve been found for a long time, and the delay was to (1) get past the midterms; and (2) allow someone to vacuum the archives of any truly incriminating material.

American Thinker:  The Zelig Presidency:

For those familiar with Woody Allen movies, one of his more unusual ones was Zelig, a movie done in a black & white, semi-documentary form about a man played by Woody Allen who has a rare chameleon-like disorder where he takes on the physical and personality traits of those who he is in close proximity. The movie stands out for its uniqueness but is also a commentary on personality, how a person gets one and how it is defined, and is it even possible to be original anymore, especially when it comes to political, artistic and intellectual greatness.

In the case of Obama, he seems to be the Zelig president. He's been taking on the characteristics and actions of past presidents while displaying no originality. He is Nixon using the IRS to target his political enemies. Here he succeeded where Nixon did not. Nixon's IRS director refused to carry out his orders when instructed to do his bidding but Lois Lerner perfected political targeting to an art. (Her problem was that she got caught.)

Continue reading

November 25, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Monday, November 24, 2014

Akron Tax Journal Publishes New Issue

Akron LogoThe Akron Tax Journal has published Volume 29 (2014):

November 24, 2014 in Scholarship, Tax | Permalink | Comments (0)

Grewal: How King v. Burwell Jeopardizes the 2014-15 ACA Enrollment Season

Andy Grewal (Iowa), How King v. Burwell Jeopardizes the 2014-2015 ACA Enrollment Season:

Commentators have expressed concern that a government loss in King v. Burwell, which addresses whether taxpayers can enjoy tax credits for policies purchased on federal exchanges, will lead to a "death spiral." Because consumers will no longer enjoy tax credits, they would stay away from the federal exchanges, which would lead to higher prices, which would discourage more consumers, and so on.

Continue reading

November 24, 2014 in Scholarship, Tax | Permalink | Comments (0)

TIGTA: 50% of IRS Employees With Outside Jobs Do Not Obtain Required Approval; 93% of Employee Computer Records Are Out of Date

TIGTA The Treasury Inspector General for Tax Administration has released Controls Over Outside Employment Are Not Sufficient to Prevent or Detect Conflicts of Interest (2014-10-073):

Generally, IRS employees are allowed to engage in outside employment or business activities after obtaining written approval. Effective controls over outside employment can reduce the risk of conflicts of interest that could result in decisions that are not in the best interest of American taxpayers. ...

IRS records indicate that, in Calendar Year 2011, nearly 3,000 of the more than 6,000 active, full-time IRS employees who held jobs or participated in business activities outside the IRS did not obtain documented approval, as required by Department of the Treasury regulations and IRS policies. IRS Human Capital Office management was generally not aware of the number of employees with unapproved outside employment because responsibility has not been assigned for overseeing the overall outside employment process. In addition, the IRS stated that it does not have authorization to use taxpayer information (e.g., Form W-2, Wage and Tax Statement) to identify employees with unapproved outside income because Internal Revenue Code Section 6103 does not clearly provide that tax data can be used for this purpose.

It will be difficult for the IRS to monitor outside employment because 93 percent of the existing records in the database used to compile outside employment requests are out of date. Moreover, approval of outside employment requests is not always documented on the database or in Official Personnel Folders, in part because of confusing and incomplete guidance.

Improving controls will be important because TIGTA identified current and former IRS employees with both actual and potential conflicts of interest. One employee pled guilty to engaging in a criminal conflict of interest for accessing taxpayer information for the purpose of conducting a private tax and accounting business, 44 IRS employees prepared tax returns for compensation (a prohibited practice), and TIGTA’s analysis identified 20 employees with a high risk of potential conflicts of interest who received outside income without documented approval. For example, four employees operated businesses with annual gross receipts ranging from more than $500,000 to more than $7 million, and six employees had wages of more than $50,000 from outside of the IRS. Significant outside income could impact the employee’s effectiveness on the job.

November 24, 2014 in IRS News, Tax | Permalink | Comments (2)

The IRS Scandal, Day 564

IRS Logo 2Daily Caller:  How to Ensure The IRS Never Abuses Its Powers Again:

It is not so much whether or when or why the IRS abused its authority by targeting Tea Party and conservative groups. We know by now the answers are: of course, over a period of year, and to aid the re-election of President Obama.

Going forward, the most important question is: How can we prevent it from happening again? The answer may be more complicated than we think. ...

The evidence proves the IRS was used as an abusive political tool to hobble or destroy as many organizations as possible that opposed President Obama’s agenda. The partisan media may continue to suppress this fact, but the denial that it happened at all is growing more absurd by the day. Journalists raised to never trust anyone over the age of 30 now seem to accept any excuse – no matter how implausible – to explain away the scandal.

Once the problem came to light, the director of the IRS Exempt Organizations Division claimed to have “lost” her emails. At the same time, the IRS was known to sanction individuals for not maintaining seven years of receipts. Would the New York Times have accepted this excuse from the Koch Brothers? ...

[W]hat the IRS did to Tea Party organizations is tyranny personified and it cannot be ignored or forgiven, because it can happen to anyone who opposes the policies of the powerful. ...

This controversy presents us with an opportunity to remove the Internal Revenue Service from political influence altogether. Anyone who respects the separation of powers, regardless of whether they are conservative, liberal, moderate, libertarian or anything else, ought to see the wisdom in separating IRS enforcement and presidential appointments.

Appointments by the president are, by and large, intended to mirror his political decisions. The IRS, however, is different. Because of its massive power and essentially unlimited authority, it must be more than fair – it must be 100 percent non-political. Even if this is unattainable, every attempt must be made.

Continue reading

November 24, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

TaxProf Blog Weekend Roundup

Sunday, November 23, 2014

Tax-Free Buyouts of Coaches' Contracts

Following up on my previous post, The Tax Treatment of Buyouts of Coaches' Contracts:  USA Today, Schools Buying Coaches' Contracts Instead of Buying Out:

StrongIt long has been a practice for universities that want to hire a new coach to pay the "buyout" to get him out of his contract at his old school.

The question has been, who pays the taxes?

To at least a few schools, the answer is nobody. The universities of Texas, Louisville and Alabama at Birmingham have found a way to structure deals to avoid tax implications – simply pay the coach's current school for the rights to his contract, and renegotiate it.

Using that approach, the schools say, the coach does not owe a buyout for terminating his contract because he technically doesn't terminate the contract. It transfers to his new school, which reaches a new deal with the coach, just as schools routinely renegotiate such contracts.

Thus, while Louisville received $4.375 million when coach Charlie Strong left for Texas, the money did not come from Strong. Instead, with Strong's blessing, Louisville sold his contract to Texas. Texas assumed all of that deal's rights and obligations, and agreed to pay Louisville $4.375 million, the same amount as Strong's buyout. ...

It's an approach intended to avoid taxes for coaches and the schools. Under federal tax law, it is undisputed that a payment made by an employer to meet an employee's personal obligation must be treated as taxable income to the employee. But to the schools, a buyout payment is viewed as a business expense. ...

How the IRS or a tax court would view these deals is is an open question, said Jeffrey H. Kahn, a professor at Florida State's law school. Kahn and his father, Douglas A. Kahn, a professor at the University of Michigan law school, wrote a 2007 law review article about buyouts [Tax Consequences When a New Employer Bears the Cost of the Employee's Terminating a Prior Employment Relationship, 8 Fla. Tax Rev. 539 (2007)].

Continue reading

November 23, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Top 5 Tax Paper Downloads

The IRS Scandal, Day 563

IRS Logo 2New York Post editorial:  Silence of the Schumer:

It wasn’t so long ago Chuck Schumer was obsessing over the idea that the tax code was being abused for partisan purposes.

Back in March 2012, he and six fellow Democratic senators wrote the IRS demanding more scrutiny for 501(c)4 groups who claimed they were involved in “social welfare” but were “devoted chiefly to political election activities who operate behind a facade of charity work.”

Later, the IRS started singling out conservative organizations for special treatment and delay.

But times have changed. Now we have a story in The New York Times about an individual deeply involved in politics who has a 501(c)4 that, as the Times puts it, appears to rank “among the most delinquent nonprofit organizations in the nation.”

The individual: the Rev. Al Sharpton. His organization: the National Action Network, which has failed to pay payroll taxes over the years. Sharpton says this wasn’t intentional but stemmed from a dispute on how to classify some independent contractors.

Nonetheless, Sharpton still flies first class and collects a nice salary from NAN as he zips between New York, Ferguson, Mo., and Washington, DC.

As the Times also reports, it’s the “kind of practice by nonprofit groups that the United States Treasury’s inspector general recently characterized as ‘abusive’ or ‘potentially criminal’ if the failure to turn over or collect taxes is willful.”

Considering how eager Sen. Schumer was to ensure 501(c)4’s weren’t gaming the tax system, we felt sure we would hear the senator thumping loudly for the IRS to take a hard look at the National Action Network.

Continue reading

November 23, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Saturday, November 22, 2014

Top Incomes Soared as Tax Rates Fell

Al Jazeera:  Top Incomes Soared as Tax Rates Fell, by David Cay Johnston (Syracuse):

For those at the very top 2010 will be remembered as a very good year. While most Americans struggled to recover from the worst economic collapse since the Great Depression, top incomes soared while tax burdens for those incomes fell.

The 400 tax returns for those with the highest reported incomes showed 31 percent more income in 2010 than in 2009, when the recession officially ended at midyear. Soaring stock prices fueled the increase at the top. On average incomes of $265.1 million the top 400 paid 18 percent in federal income taxes, down from 19.9 percent in 2009. The lowest tax on the top 400 was 16.6 percent in 2007.

AJ1

AJ2

Bloomberg:  Top 400 U.S. Households Paid 18% Average Tax Rate in 2010, by Richard Rubin:

The top 400 taxpayers in the U.S. paid an average tax rate of 18 percent in 2010, the lowest since 2007, according to Internal Revenue Service data released today. ...

The data show the highest-income U.S. households rebounding from the recession in 2009. The minimum adjusted gross income needed for the exclusive list rose 28 percent, to $99.1 million, and the average income of those on the list reached $265 million.

The IRS data offer a glimpse into the finances of the wealthiest U.S. households, who now receive more than twice the share of national income than they did in 1995. These taxpayers had 1.31 percent of all adjusted gross income in the U.S. in 2010 and paid 2.01 percent of the income taxes, though they make up less than 0.001 percent of the population, according to the IRS.

IRS Statistics of Income Division, The 400 Individual Income Tax Returns Reporting the Largest Adjusted Gross Incomes Each Year, 1992–2010:

Continue reading

November 22, 2014 in Tax | Permalink | Comments (7)

USC Book Panel Discussion on Kleinbard's We Are Better Than This

Kleinbard Flyer

Prior TaxProf Blog coverage:

Continue reading

November 22, 2014 in Book Club, Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 562

Wall Street Journal:  IRS Finds Missing Emails of Former Top Official Lerner in Targeting Probe:

The watchdog agency for the Internal Revenue Service said it has found as many as 30,000 missing emails that could be relevant to a long-running congressional inquiry into alleged IRS targeting of conservative groups.

Investigators for the Treasury Inspector General for Tax Administration recently recovered the emails from IRS backup tapes, according to a spokeswoman for the watchdog agency. The emails belong to a former top IRS official, Lois Lerner, who has been a focus of congressional inquiries. ...

Top IRS officials had told lawmakers that backup tapes were routinely recycled and therefore weren't useful in the effort to find the missing email records. The agency said it had used other employees’ hard drives to recover thousands of the missing emails.

But TIGTA investigators succeeded in locating thousands of Ms. Lerner’s emails on the backup tapes. ...

The IRS said in a statement: “As Commissioner Koskinen has stated, the IRS welcomes TIGTA’s independent review and expert forensic analysis. Commissioner Koskinen has said for some time he would be pleased if additional Lois Lerner emails from this time frame could be found.”

The revelations promise to draw new attention to the targeting controversy, just before lawmakers return to Washington for the new Congress next year. TIGTA officials told lawmakers on Friday about the discovery of the missing emails, but congressional aides said it could take some weeks before the emails are sorted and in shape to examine. The emails must be decrypted and in some cases must be redacted to remove taxpayer-identifying information, aides said.

Continue reading

November 22, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Friday, November 21, 2014

Hickman Presents Treasury's Retroactivity Today at Miami

Hickman 2014 2Kristin Hickman (Minnesota) presents Treasury's Retroactivity at Miami today as part of its Legal Theory Workshop Series hosted by Leigh Osofsky:

In Bowen v. Georgetown University Hospital, the Supreme Court described retroactivity as "not favored in the law" and generally rejected allowing federal administrative agencies to adopt regulations "altering the past legal consequences of past actions."  Unlike most regulatory agencies, Treasury and the IRS are expressly authorized by Congress to adopt regulations with precisely such primary retroactive effect.  Specifically, IRC § 7805(b) grants Treasury and the IRS the power to backdate tax regulations under a variety of circumstances.  Preliminary analysis shows that Treasury and the IRS utilize this authority regularly with little judicial oversight for abuse of discretion.  Using empirical data, this article will explore more fully Treasury and IRS utilization of the authority to adopt retroactively effective regulations interpreting the Internal Revenue Code.

November 21, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Weekly Tax Roundup

November 21, 2014 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Weekly SSRN Tax Roundup

Weekly Student Tax Note Roundup

November 21, 2014 in Scholarship, Tax, Weekly Student Tax Note Roundup | Permalink | Comments (0)

California’s Tax Hikes Versus Kansas’ Tax Cuts: Early Results Now In

Tax Justice Network, California’s Tax Hikes Versus Kansas’ Tax Cuts: Early Results Now In:

From a new paper by Paul Caron of Pepperdine University and Joseph Bankman of Stanford University:

The conventional wisdom in California two years ago was that raising taxes on the wealthy would harm the economy and doom any politician who dared touch this third rail. Instead, the public embraced this approach at the ballot box and, after enjoying the fruits of an economic turnaround, appears poised to reward the Governor with a landslide re-election.

LafferIt seems that the absurd Laffer Curve, which is often used to make the ridiculous proposition that tax cuts increase revenue, didn’t work in this case. Now in Kansas, they went the other way. ... “Kansas’ budget problems keep getting worse. . . . state revenues dropped 11 percent in the fiscal year 2014 (which ended in June) after the tax cuts took effect. But that may not even be the whole picture. A close look at the state’s new revenue projections makes clear they are highly optimistic, even after this week’s cut in the forecast.”

Back to the Caron / Bankman paper, which does an unusual and welcome thing for academics.

Get this: it urges scholars to take their heads out of the sand and get stuck into the real world. In fact, this is the central argument of the paper (which is entitled California Dreamin’: Tax Scholarship in a Time of Fiscal Crisis [48 U.C. Davis L. Rev. 405 (2014)]).

We have found that the need for more revenue is a common conversation topic among tax scholars. However, it is not a common topic in tax scholarship. Indeed, it is not even clear that it “qualifies” as scholarship, as that term is commonly defined. In law, at least, highly praised scholarship is generally marked by a masterful description of the law that suggests the need for change.

Quite so, and strong and unusual medicine.

Now here is some discussion that we at TJN and quite a few others have been saying for years. It’s worth quoting at length.

In recent years, legal tax scholars have made normative claims based on those arguments. However, those normative claims are quite limited and explicitly apolitical . . . . writing about the fiscal crisis, in contrast, throws the scholar directly into the political world. . . . Legal tax scholars who write on this subject run the risk of being dismissed as political, or lacking requisite knowledge.

Unfortunately, scholars in allied fields face similar problems. Economists are also reluctant to write on subjects so entwined with politics and often have less knowledge of specific tax provisions than legal tax scholars. Political scientists lack economic sophistication and knowledge of the tax law, and know less about the politics of tax preferences than either lawyers or economists. The fiscal crisis thus falls between at least three disciplines. As a result, scholars in each of those disciplines are reluctant to write on a subject they believe is central to the nation’s health.

They cite honourable exceptions, such as this highly recommended book by Ed Kleinbard [We Are Better Than This: How Government Should Spend Our Money (Oxford University Press, 2014)], if you’re interested in the U.S. tax system.

And they conclude:

Two years ago, both California and the nation were imperiled by long- term, structural, budget imbalances. California has reduced that peril by raising (already high) personal tax rates on the wealthy. The political success of that approach suggests that at the national level, Americans might be willing to support higher rates to maintain government services and move toward fiscal solvency.

November 21, 2014 in Scholarship, Tax | Permalink | Comments (0)

Viard: Moving Away From the Realization Principle

Tax Analysys Logo (2013)Alan D. Viard (American Enterprise Institute), Moving Away From the Realization Principle, 145 Tax Notes 847 (Nov. 17, 2014):

Viard describes the realization principle’s flaws and the federal tax system’s incremental movement toward mark-to-market taxation.

November 21, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0)

CBO: Options for Reducing the Deficit, 2015 to 2024

Congressional Budget Office, Options for Reducing the Deficit: 2015 to 2024:

This document provides estimates of the budgetary savings from 79 options that would decrease federal spending or increase federal revenues over the next decade. 

36 of these 79 options are tax increases:

Individual Income Tax Rates
1.  Increase Individual Income Tax Rates
2.  Implement a New Minimum Tax on Adjusted Gross Income
3.  Raise the Tax Rates on Long-Term Capital Gains and Dividends by 2 Percentage Points

Continue reading

November 21, 2014 in Congressional News, Gov't Reports, Tax | Permalink | Comments (0)

The IRS Scandal, Day 561

IRS Logo 2Legal Insurrection:  IRS Fears Employees Being “Seized With Spontaneous Diarrhea”, by WIlliam Jacobson (Cornell):

Hey, remember the Reader Poll we did about whether it was okay to follow and try to interview Lois Lerner in her neighborhood? ... 

Someone noticed the comments to the blog post.  The IRS.  And it’s not happy.

In a federal FOIA lawsuit by Judicial Watch seeking records of Lerner emails and IRS efforts to retrieve the emails, the IRS used two of the comments to the Legal Insurrection Reader Poll post to justify the IRS no longer disclosing the identities of IRS personnel.

Think about that. The IRS is reading our comments. Don’t they have anything better to do, like hassle conservative groups seeking tax-exempt status? On second thought, keep reading our comments and leave conservative groups alone.It’s all set forth in the IRS’s opposition to Judicial Watch’s Motion to Compel Discovery. You can read the whole thing here.

The Legal Insurrection post is Exhibit D to the IRS affidavit. ...

Does the IRS really fear “public whipping with a buggy whip” and being in such fear its employees are “seized with spontaneous diarrhea”?

Continue reading

November 21, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Thursday, November 20, 2014

Polsky: A Compendium of Private Equity Tax Games

Gregg D. Polsky (North Carolina), A Compendium of Private Equity Tax Games:

This paper will describe and analyze tax strategies, lawful and unlawful, used by private equity firms to minimize taxes. While one strategy — the use of “carried interest” — should by now be well understood by tax practitioners and academics, the others remain far more obscure. In combination, these strategies allow private equity managers to pay preferential tax rates on all of their risky pay (through carried interest), pay preferential tax rates on much of their non-risky pay (through management fee waivers and misallocations of their expense deductions), and push much of the residual non-risky pay down to their funds’ portfolio companies who, unlike the fund, can derive significant tax benefits from the resulting deductions (through monitoring fees and management fee offsets).

November 20, 2014 in Scholarship, Tax | Permalink | Comments (0)

Zelinsky: The Giving Pledge and Reform of the Estate Tax Charitable Deduction

Giving PledgeEdward A. Zelinsky (Cardozo), Why the Buffett-Gates Giving Pledge Requires Limitation of the Estate Tax Charitable Deduction, 16 Fla. Tax Rev. 393 (2014):

The Buffett-Gates Giving Pledge, under which wealthy individuals promise to leave a majority of their assets to charity, is an admirable effort to encourage philanthropy. However, the Pledge requires us to confront the paradox that the federal estate tax charitable deduction is unlimited while the federal income tax charitable deduction is capped. If a Giving Pledger leaves his wealth to charity, the federal fisc loses significant revenue since the Pledger thereby avoids federal estate taxation as charitable bequests are deductible without limit for federal estate tax purposes. Despite its laudable qualities, the Giving Pledge is a systematic (albeit inadvertent) threat to the estate tax base.

Continue reading

November 20, 2014 in Scholarship, Tax | Permalink | Comments (0)

Number of Ultra Rich Increased 6% in 2014

Wealth-X and UBS World Ultra Wealth Report 2014:

12,040 new ultra high net worth (UHNW) individuals were minted this year, pushing the global UHNW population to a record 211,275, a 6% increase from 2013. The combined wealth of the world’s UHNW individuals – defined as those with US$30 million and above in net assets – increased by 7% to US$29.725 trillion in 2014, almost twice the GDP of the world’s largest economy, the United States.

Wealth 1

Wealth 2

Wealth 3

November 20, 2014 in Tax | Permalink | Comments (0)

Harvey: Corporate Tax Aggressiveness -- Recent History and Policy Options

J. Richard (Dick) Harvey (Villanova), Corporate Tax Aggressiveness -- Recent History and Policy Options, 67 Nat'l Tax J. 831 (2014):

This paper examines corporate tax aggressiveness from the 1990s to 2014. The paper also discusses various public indicia of corporate tax aggressiveness and analyzes selected data from 21 public companies. Finally, the paper discusses several policy options for further reducing corporate tax aggressiveness, including: (1) improvements to the IRS whistleblower program, (2) increased transparency, and (3) changes to the penalty structure surrounding aggressive tax positions. 

November 20, 2014 in Scholarship, Tax | Permalink | Comments (0)

Pepperdine/Tax Analysts Symposium Papers: Tax Reform in a Time of Crisis

TaxSymposiumHeaderHere are links to the eleven published papers from the Pepperdine/Tax Analysts Symposium on Tax Reform in a Time of Crisis (Jan. 17, 2014):

Thanks to the paper commentators:  Donald Korb (Partner, Sullivan & Cromwell; former IRS Chief Counsel), Nancy Staudt (Dean, Washington University), and Eric Zolt (UCLA)

November 20, 2014 in Conferences, Scholarship, Tax | Permalink | Comments (2)

Seven Companies Spent More on CEO Pay Than Federal Taxes

IPS_Fleecing_Uncle_Sam_Report_Nov2014 coverInstitute for Policy Studies and the Center for Effective Government, Fleecing Uncle Sam: A Growing Number of Corporations Spend More on Executive Compensation Than Federal Income Taxes:

Of America’s 30 largest corporations, seven (23 percent) paid their CEOs more than they paid in federal income taxes last year.

  • All seven of these firms were highly profitable, collectively reporting more than $74 billion in U.S. pre-tax profits. However, they received a combined total of $1.9 billion in refunds from the IRS.
  • The seven CEOs leading these tax-dodging corporations were paid $17.3 million on average in 2013. Boeing and Ford Motors both paid their CEOs more than $23 million last year while receiving large tax refunds.

Continue reading

November 20, 2014 in Tax, Think Tank Reports | Permalink | Comments (4)

GAO Report on 'Supersize' IRAs

Super Size MeFollowing up on my previous posts:

GAO, IRS Could Bolster Enforcement on Multimillion Dollar Accounts, but More Direction from Congress Is Needed (GAO-15-16):

For tax year 2011 (the most recent year available), an estimated 43 million taxpayers had individual retirement accounts (IRA) with a total reported fair market value (FMV) of $5.2 trillion. As shown in the table below, few taxpayers had aggregated balances exceeding $5 million as of 2011. Generally, taxpayers with IRA balances greater than $5 million tend to have adjusted gross incomes greater than $200,000, be joint filers, and are age 65 or older. Large individual and employer contributions sustained over decades and rolled over from an employer plan would be necessary to accumulate an IRA balance of more than $5 million. There is no total statutory limit on IRA accumulations or rollovers from employer defined contribution plans.

Estimated Taxpayers with Individual Retirement Accounts (IRA) by Size of IRA Balance, Tax Year 2011

Estimated Taxpayers with Individual Retirement Accounts (IRA) by Size of IRA Balance, Tax Year 2011

A small number of taxpayers has accumulated larger IRA balances, likely by investing in assets unavailable to most investors—initially valued very low and offering disproportionately high potential investment returns if successful. Individuals who invest in these assets using certain types of IRAs can escape taxation on investment gains. For example, founders of companies who use IRAs to invest in nonpublicly traded shares of their newly formed companies can realize many millions of dollars in tax-favored gains on their investment if the company is successful. With no total limit on IRA accumulations, the government forgoes millions in tax revenue. The accumulation of these large IRA balances by a small number of investors stands in contrast to Congress's aim to prevent the tax-favored accumulation of balances exceeding what is needed for retirement.

(Hat Tip: Greg McNeal.)

November 20, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 560

IRS Logo 2American Spectator:  The Lois Lerner Curve: How Anti-corruption Laws Cause Even More Corruption:

Corrupt countries, where the rule of law is weak and political pilfering is common, are poor countries. Entrepreneurs and investors cannot safely start or finance businesses in states that don’t respect property rights and honor contracts, or that use the levers of the government to go after political opponents. And it’s not as though America doesn’t have a corruption problem. On Transparency International’s Corruption Perceptions Index, the U.S. comes in at number 19, behind most of the rest of the First World.

For anyone following the Lois Lerner scandal, that’s not surprising. What should be surprising, perhaps, are her defenders. Lerner tampered with IRS nonprofit applications, and revealed them only when an Inspector General was about to report on them. Then the cover-up began. The IRS put out a story that blamed the shenanigans on low-level Cincinnati employees. We were told that the IRS hadn’t picked on conservative any more than liberal groups. All lies. Then Lerner pled the Fifth, and her emails mysteriously disappeared. ...

[T]here’s another reason why the Lois Lerner scandal was to be expected: we have an excess, not an insufficiency, of laws. Now, we do need laws to police corruption of the obvious sort, such as bribery and extortion. But anti-corruption laws can cause more corruption than they prevent when they rely on complicated five-point standards of the kind loved by Anthony Kennedy and law school professors, with balanced and nuanced rules that seek to apply a scalpel to tasks better suited to an earthmover. We end up giving politicized bureaucrats a weapon to use against their opponents. It’s like handing a match to a giddy pyromaniac.

I call this the Lois Lerner Curve. With few laws policing corruption, there’s a lot of it. Then, as law enforcement increases, corruption declines, down to point zero on the curve. Thereafter, however, additional laws result in more corruption, because citizens and bureaucrats alike become lost in the complexity and enforcement is unevenly applied. ...

Lerner

I think of this when I read about proposals for campaign finance reform. Sure, there’s room for cleaning up the pay-for-play politics of crony capitalism and the gerrymandering that makes most Congressional seats into fiefdoms for life. And there are well-meaning people, like Harvard’s Larry Lessig, who for honest motives want to limit campaign spending. Whatever their intentions, however, what they would do is take our election laws up the right-hand side of the Lois Lerner Curve, resulting in more corruption. Lurking behind them are Lois Lerner’s duplicitous partisans, the bare-knuckled street fighters who seek to end the scandal of Republican money in politics, and who would give us a country as free of corruption as Russia. They are scoundrels in the cause of honor, whores who clamor for morality, thieves in defense of property rights. 

Was that a little rough, just now? Then let me remind you about True the Vote, the conservative vote-monitoring organization led by Catherine Englebrecht. True the Vote trains volunteers to record and report on suspicious voter registrations. We’re not talking about the New Black Panthers with their baseball bats, but nevertheless Rep. Elijah Cummings opened up a congressional investigation into the group. His staffers wrote to Lois Lerner about it, and subsequently the IRS questioned its tax-exempt status. In in short order Engelbrecht’s business was visited by the FBI, ATF, and OSHA. She testified about this in February, and what’s interesting is how Democrats treated her. Cummings questioned her about her possible racist motives, and Gerry Connolly complained of McCarthyism and mocked her “paranoia” for thinking the audits might have been politically motivated.

Continue reading

November 20, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (6)

Wednesday, November 19, 2014

Raskolnikov Presents Rational Decisions Under Legal Uncertainty Today at Washington University

RaskolnikovAlex Raskolnikov (Columbia) presents Rational Decisions Under Legal Uncertainty at Washington University today as part of its Faculty Workshop Series:

Law is full of rules that are neither clear nor socially optimal. How do rational actors respond to these rules? What are the implications of these responses? These deceptively simple questions have no answers in law and economics. This paper offers a model of rational decisionmaking under legal uncertainty and explores its implications by combining formal economic analysis with a practical understanding of the market for legal advice. The model produces a number of intuitive, realistic results. It demonstrates why rational actors take uncertain positions even if these positions are highly likely to be detected. It suggests that most of these positions will have a better than a fifty-fifty chance of being sustained. And it allows us to investigate a popular but controversial view that greater legal certainty does not necessarily lead to greater compliance. The model’s analysis both refutes the obvious explanation for this view and offers an alternative one. When detection uncertainty is taken into account, the model confirms that the standard damages multiplier works when legal rules are ambiguous. At the same time, the model raises difficult questions about the meaning of compliance when rules are uncertain, the normative significance of various types of uncertainty, and the challenges of assessing private responses to legal uncertainty outside of the familiar confines of the optimal deterrence theory.

November 19, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Hayashi Presents Phantom Income and the Simple Economics of Paying In Kind Today at Texas A&M

HayashiAndrew Hayashi (Virginia) presents Phantom Income and the Simple Economics of Paying In Kind at Texas A&M today as part of its Business Law Seminar:

Modern tax instruments impose cash taxes on non-cash bases. Property taxes, income taxes, gift taxes and estate taxes all must be paid in cash, even though income, gifts and estates only sometimes take the form of cash, and property never does. If it is costly to convert the tax base into cash, taxpayers may suffer from liquidity problems that require them to make painful adjustments to their savings or consumption. Although concern about taxpayer liquidity has shaped tax law and looms large in current debates about wealth taxation, tax accounting, and mark-to-market reforms, the economic factors that influence the welfare costs of cash tax collection have not been explored in a rigorous way. In this paper I present an economic analysis of the liquidity problem, identifying the factors that determine the welfare costs of cash tax collection. I apply this analysis to the property tax and to the taxation of income that accrues before it is received, sometimes called “phantom income.”

November 19, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (2)

Macnaughton Presents Income Splitting and Anti-Avoidance Legislation Today at Toronto

AlanAlan Macnaughton (Waterloo) presents Income Splitting and Anti-Avoidance Legislation: Evidence from the Canadian “Kiddie Tax” (with Andrew Bauer (Illinois)  & Anindya Sen (Waterloo)) at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series:

We examine whether “kiddie tax” legislation in Canada, effective as of 2000, deters income splitting between parents and minor children by taxing at the top marginal rate certain types of non-labour income received by children. OLS estimates based on cross-province and time-series data reveal that the share of dividend income reported by children aged 19 and under declines by 86% after the introduction of this anti-avoidance rule. The estimates also reveal that the share of capital gains (income not covered by the legislation) reported by minor children increases by 70% in the post-legislation period, suggesting that parents are switching to an alternative income splitting technique. However, the latter percentage effect is on a small base, and thus the decrease in dividend income is much larger than the increase in capital gains income. Hence, our analysis suggests that the “kiddie tax” is an effective method to deter income splitting.

November 19, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Blank Presents Reconsidering Corporate Tax Privacy Today at Rutgers

BlankJoshua D. Blank (NYU) presents Reconsidering Corporate Tax Privacy, 11 N.Y.U. J. L. & Bus. ___ (2014), at Rutgers-Newark today as part of its Faculty Colloquium Series:

For over a century, politicians, government officials and scholars in the United States have debated whether corporate tax returns, which are currently subject to broad tax privacy protections, should be publicly accessible. The ongoing global discussion of base erosion and profit shifting by multinational corporations has generated calls for greater tax transparency. Throughout this debate, participants have focused exclusively on the potential reactions of a corporation’s managers, shareholders and consumers to a corporation’s disclosure of its own tax return information. There is, however, another perspective: how would the ability of a corporation’s stakeholders and agents to observe other corporations’ tax return information affect the corporation’s compliance with the tax law?

Continue reading

November 19, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

NY Times: Al Sharpton's Influence Grows, As Do His Unpaid Taxes

SharptonNew York Times, Questions About Sharpton’s Finances Accompany His Rise in Influence:

Mr. Sharpton’s influence and visibility have reached new heights this year, fueled by his close relationships with the mayor and the president. Obscured in his ascent, however, has been his troubling financial past, which continues to shadow his present. 

Mr. Sharpton has regularly sidestepped the sorts of obligations most people see as inevitable, like taxes, rent and other bills. Records reviewed by The New York Times show more than $4.5 million in current state and federal tax liens against him and his for-profit businesses. And though he said in recent interviews that he was paying both down, his balance with the state, at least, has actually grown in recent years. His National Action Network appears to have been sustained for years by not paying federal payroll taxes on its employees.

With the tax liability outstanding, Mr. Sharpton traveled first class and collected a sizable salary, the kind of practice by nonprofit groups that the United States Treasury’s inspector general for tax administration recently characterized as “abusive,” or “potentially criminal” if the failure to turn over or collect taxes is willful.

Continue reading

November 19, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (3)

The Tax Consequences of the Lincoln Center's Naming Rights

NYCForbes:  What's In A Name? Should Naming Rights Reduce Charitable Deductions?, by Peter J. Reilly:

When Avery Fisher gave Lincoln Center $10.5 million in 1973 to renovate Philharmonic Hall it was agreed that the hall be called Fisher Hall in perpetuity. Perpetuity turns out to be measured in decades rather than centuries or millennia. Lincoln Center wants to renovate or raze and rebuild now and is hoping to auction off naming rights. According to this story in the New York Times, objections by the Fisher family have been assuaged by “essentially paying ” them $15 million. I’d really like to dig into what is meant by “ essentially paying”, but dammit Jim, I’m just a tax blogger, not an investigative reporter. I’m going to take “essentially paying” to mean paying and what was paid for was some amorphous right that the Fisher family had to keep its name plastered on a building.

The story raises the question of whether you should be able to take a full charitable deduction for a donation if, as a legally binding condition of the donation, you get to have a landmark building named after you. It is worth noting that the Fisher family actually ended up making a profit, although rather a modest one on the whole deal. I computed the pre-tax return to the family as being roughly 0.85%, which is really anemic, unless you compare it to what is being paid on contemporary deposit balances. If you assume that Mr. Fisher took a charitable deduction with a 70% benefit in 1973 and the family paid capital gain tax on the Lincoln Center payoff, the after tax return comes to 3.88%, which is not great, but still better than getting poked in the eye with a sharp stick.

I’m not sure where I might have went with this, so I have to say – Thank God for law professors – and not just because the Tax Prof gives me plug now and again. Professor William Drennan of Southern Illinois University has written an article titled Where Generosity And Pride Abide: Charitable Naming Rights [80 U. Cin. L. Rev. 45 (2011)].

Continue reading

November 19, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

The IRS Scandal, Day 559

Tuesday, November 18, 2014

Hanlon Presents Tax Rates and Corporate Decision Making Today at Columbia

HanlonMichelle Hanlon (MIT) presents Tax Rates and Corporate Decision Making (with John Graham (Duke), Terry Shevlin (UC-Irvine) & Nemit Shroff (MIT)) at Columbia today as part of its Tax Policy Colloquium Series hosted by Alex RaskolnikovDavid Schizer, and Wojciech Kopczuk:

We analyze survey responses from 500 corporate tax executives to better understand which tax rate firms use to incorporate taxes into their decision making. Prior research assumes that managers use the marginal tax rate (MTR) to evaluate incremental corporate decisions. However, we find that approximately 45% of tax executives surveyed state that their firms use some form of effective tax rate (ETR) as the tax rate input into capital structure, capital expenditure, and acquisition decisions, whereas less than 13% state that their firms use the MTR. We then examine the determinants and consequences of managers’ tax rate choice. We find that public firms and firms with greater analyst following are more likely to incorporate the GAAP ETR as the tax rate input into their decisions, whereas larger firms and firms with high R&D intensity are less likely to do so. Finally, we find that firms using GAAP ETRs as the tax rate input for investment decisions are less responsive to their growth opportunities and have lower acquisition announcement returns when the difference between the firm’s GAAP ETR and MTR is large. Further, we find that these firms adopt an aggressive (conservative) debt policy when the GAAP ETR is greater (less) than MTR. These results suggest that the use of GAAP ETRs instead of the theoretically suggested MTR as the tax rate input for decision making leads to inefficient corporate decisions.

November 18, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Repetti Presents The Role of Economic Efficiency in Formulating Tax Policy Today at Loyola-Chicago

Repetti (2014)James R. Repetti (Boston College) presents What is the Appropriate Role for Economic Efficiency in Formulating Tax Policy? at Loyola-Chicago today:

Traditionally, the great democracies of the western world assigned equal weight to distributive justice and economic efficiency in designing a tax system. In the past few decades, however, economic efficiency has dominated the debate about the best design of a tax system in politics and analysis by legal academics. For example, many advocate low tax rates on capital gains to reduce the efficiency effects of taxing capital income despite the fact that a capital gains preference reduces progressivity and significantly complicates our tax system. Similarly, discussions of progressive tax rates often focus on the adverse efficiency effects of high rates while ignoring benefits arising from a progressive rate structure’s reduced burden on lower income individuals. In addition, many have proposed replacing the income tax with a consumption tax in order to eliminate the tax burden on investment income even though a consumption tax, regardless of its design, would increase the tax burden for many lower income taxpayers.

Continue reading

November 18, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

The Top 1% v. the Top .01%: The Haves vs. the Have-Mores

New York Times:  Another Widening Gap: The Haves vs. the Have-Mores, by Robert Frank (Cornell):

The wealthy now have a wealth gap of their own, as economic gains become more highly concentrated at the very top. As the top one-hundredth of the 1 percent pulls away from the rest of that group, the superrich are leaving the merely very rich behind. That has created two markets in the upper reaches of the economy: one for the haves and one for the have-mores.

Whether the product is yachts, diamonds, art, wine or even handbags, the strongest growth and biggest profits are now coming from billionaires and nine-figure millionaires, rather than mere millionaires.

According to a recent paper by the economists Emmanuel Saez of the University of California, Berkeley, and Gabriel Zucman of the London School of Economics, almost all of the increase in American inequality over the last 30 years is attributable to the “rise of the share of wealth owned by the 0.1 percent richest families.” And much of that rise is driven by the top 0.01 percent.

Top 1%

Continue reading

November 18, 2014 in Tax | Permalink | Comments (2)

Inequality, Unbelievably, Gets Worse

New York Times:  Inequality, Unbelievably, Gets Worse, by Steven Rattner:

The Democrats’ drubbing in the midterm elections was unfortunate on many levels, but particularly because the prospect of addressing income inequality grows dimmer, even as the problem worsens.

To only modest notice, during the campaign the Federal Reserve put forth more sobering news about income inequality: Inflation-adjusted earnings of the bottom 90 percent of Americans fell between 2010 and 2013, with those near the bottom dropping the most. Meanwhile, incomes in the top decile rose.

NYT 1

Before the impact of tax and spending policies is taken into account, income inequality in the United States is no worse than in most developed countries and is even a bit below levels in Britain and, by some measures, Germany. However, once the effect of government programs is included in the calculations, the United States emerges on top of the inequality heap.

NYT 2

That’s because our taxes, while progressive, are low by international standards and our social welfare programs — ranging from unemployment benefits to disability insurance to retirement payments — are consequently less generous.

Conservatives may bemoan the size of our government; in reality, according to the Organization for Economic Cooperation and Development, total tax revenues in the United States this year will be smaller on a relative basis than those of any other member country.

Continue reading

November 18, 2014 in Tax | Permalink | Comments (1)

More on the CBO's Distribution of Household Income and Federal Taxes

Following up on last week's post, CBO: The Distribution of Household Income and Federal Taxes, 2011:

American Enterprise Institute:  New CBO Study Shows That ‘the Rich’ Don’t Just Pay Their ‘Fair Share,’ They Pay Almost Everybody’s Share:

AEI 1

The CBO just released its annual report on The Distribution of Household Income and Federal Taxes analyzing data through 2011 on American household’s: a) average “market income” (a comprehensive measure that includes labor income, business income, and income from capital gains), b) average household transfer payments (payments and benefits from federal, state and local governments including Social Security, Medicare and unemployment insurance), and c) average federal taxes paid by households (including income, payroll, corporate, and excise taxes). Some of the key findings of the CBO analysis are displayed in the table above, with the data organized by household income quintiles. The data in the first five rows above appear in the CBO report (from Tables 1 and 4), and rows 6-8 above have been calculated separately based on data from the first four rows in the table. ...

Some additional analysis and commentary will be provided here that reveal a yet-to-be discussed major implication of the CBO report – almost the entire burden: a) of all transfer payments made to American households and b) of all non-financed government spending, falls on just one group of Americans – the top one-fifth of US households by income. That’s correct, the CBO study shows that the bottom three income quintiles representing 60% of US households are “net recipients” (they receive more in transfer payments than they pay in federal taxes), the second-highest income quintile pays just slightly more in federal taxes ($14,800) than it receives in government transfer payments ($14,100), while the top 20% of American “net payer” households finance 100% of the transfer payments to the bottom 60%, as well as almost 100% of the tax revenue collected to run the federal government. Here are the details of that analysis.

AEI 2

The CBO study released this week provides ample evidence that the richest Americans are paying their “fair share” of federal taxes. In fact, the richest 20% of Americans by income aren’t just paying a share of federal taxes that would be considered “fair” — it goes way beyond “fair” — they’re shouldering almost 100% of the entire federal tax burden of transfer payments and all other non-financed government spending. What’s probably not so fair is that the bottom 60% isn’t just getting off with a small tax burden or no tax burden – the bottom 60% are net recipients of transfer payments from the top 20% to the tune of about $10,000 per household in 2011. So maybe what the CBO report shows is that we should be asking whether or not the bottom 60% are paying their fair share when they’re not paying anything – they’re net recipients of transfer payments that come from “the richest” 20% of American households. When the top 20% of US households are financing almost 100% of the transfer payments to the bottom 60% and financing almost the entire non-financed operating budget of the federal government, I’d say “the rich” are paying beyond their fair share of the total tax burden, and we might want to start asking if the bottom 60% of “net recipient” households are really paying their fair share.

Washington Post Wonkblog, Tax Rates Are Finally on the Rise for the Top 1 Percent, CBO Says:

Continue reading

November 18, 2014 in Tax | Permalink | Comments (0)