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Monday, August 4, 2014

L.A. Times on Tax Inversions

Los Angeles Times: Close Loopholes That Let U.S. Firms Avoid Taxes by Using Inversions, by Michael Hiltzik:

It's both endearing and infuriating to watch American corporate executives wring their hands about how the injustices of the U.S. tax code are forcing them — forcing them! — to reincorporate overseas through the procedure known as inversion.

Endearing, because one wants to sympathize with the pain felt by a homegrown CEO having to move a homegrown American company's headquarters to Ireland, Switzerland or some other foreign clime, just to remain competitive.

Infuriating, because they're so full of it. ...

Defenders of inversions say they don't really affect the American company's U.S. taxes — that's the claim made recently in the Wall Street Journal by Miles White, chairman of Abbott Laboratories, which is conniving with Mylan on its inversion deal.

But like much that's said about inversions, that's misleading, says Edward D. Kleinbard, a USC law professor whose role as a former chief of staff to the Congressional Joint Committee on Taxation certifies him as one of our leading experts on the corporate tax.

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August 4, 2014 in Tax | Permalink | Comments (1)

The IRS Scandal, Day 452

TaxProf Blog Weekend Roundup

Sunday, August 3, 2014

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 on SSRN, with a new paper debuting on the list at #5:

  1. [329 Downloads]  What Would Yale Do If It Were Taxable?, by Patrick Geddes (Aperio Group), Lisa Goldberg (UC-Berkeley) & Stephen Bianchi (UC-Berkeley)
  2. [289 Downloads]  Guide to FATCA Compliance (Chapter 1, Background and Current Status of FATCA) (LexisNexis 2d ed. 2014), by William Byrnes (Thomas Jefferson), Denis Kleinfeld, & Alberto Gil Soriano
  3. [249 Downloads]  Sales Suppression as a Service (SSaaS) & the Apple Store Solution, by Richard Ainsworth (Boston University)
  4. [214 Downloads]  Desperate Retirees: The Perplexing Challenge of Covering Retirement Health Care Costs in a YOYO World, by Richard L. Kaplan (Illinois)
  5. [155 Downloads]  Unconstitutional Perpetual Trusts, by Steven Horowitz (Sidley Austin, Chicago) & Robert Sitkoff (Harvard)

August 3, 2014 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

The IRS Scandal, Day 451

Saturday, August 2, 2014

WSJ: Inversions Cut Corporation's Taxes, Raise Shareholders' Taxes

Wall Street Journal Tax Report:  An 'Inversion' Deal Could Raise Your Taxes: Shareholders Are Likely to Owe Capital-Gains Tax, by Laura Saunders:

U.S. companies are busy buying overseas firms in deals that reduce their tax payments. Ironically, though, these mergers could saddle shareholders with higher tax bills.

In an "inversion," a U.S. firm merges with a foreign one, and shifts much of its income abroad. For corporations, the goal is simple: to exchange the U.S.'s steep corporate tax rate, which runs as high as 35%, for a much lower one elsewhere. Take AbbVie, a U.S. pharmaceutical firm that plans to merge with Irish drug firm Shire this year. Once the deal is consummated, the combined company will be taxed as a U.K. corporation with an estimated rate of about 13% by 2016. Other U.S. companies that have considered or are pursuing inversions are Pfizer, Medtronic, Walgreen, Chiquita Brands International, Applied Materials, Salix Pharmaceuticals, Mylan and Auxilium Pharmaceuticals.

Shareholders in companies pursuing inversions are likely to owe capital-gains tax if the deals occur, but, unlike with other taxable mergers, they won't receive any cash payment to help cover it.  The deals are taxable because the U.S. company, although it will ultimately control the foreign firm, is technically the one that's being acquired, says Robert Willens, an independent tax adviser in New York. The U.S. firm's shareholders will receive new shares to replace their old ones. That exchange is considered taxable by the IRS. ...

 WSJ

Here are three tax-minimizing strategies for investors coping with inversions.

The IRS Scandal, Day 450

IRS Logo 2Fox News:  Lois Lerner Ripping ‘Crazies’ on Right: Why Some Media Folks Don’t Care, by Howard Kurtz:

The new batch of Lois Lerner emails may or may not be a smoking gun. But they’re something of a Rorschach test for the media.

For the former IRS official to be branding conservative commentators as “crazies” and “a--holes” is a telling moment in this scandal—but some in the media could care less.

To be sure, this investigation has dragged on a long time without proving a link between the White House and the Cincinnati office’s targeting of advocacy groups, especially on the right, for special scrutiny of their tax-exempt status. Critics say that conservative outlets such as Fox have tried to keep the story alive.

But the administration has done a decent job of bringing the story back to the headlines. The IRS acknowledged that it could not find two years’ worth of lost emails written or received by Lerner, who pleaded the Fifth when summoned by Congress. And the commissioner, William Koskinen, sounded downright arrogant when he showed up on the Hill.

Now the Republicans have found three emails in which Lerner disparaged conservatives.

What did the New York Times give the story? One measly paragraph, written by the AP, in a roundup column.

How much airtime did the story get that night on ABC’s “World News”? None.

The messages don’t prove that Lerner deliberately targeted Tea Party groups for special scrutiny, or that higher-ups knew about it. But they reveal a whole heckuva lot about her state of mind.

To give it short shrift suggests a certain eye-rolling attitude toward the IRS story, or perhaps a tacit view that some conservatives are kinda nuts.

Imagine a swirling controversy about a Bush administration official who was alleged to be out to get liberal groups. Emails surface in which the person rips, say, pundits on MSNBC or other liberal activists. Wouldn’t the press go crazy that such a biased individual was in charge of investigations? Wouldn’t there be analyses and op-ed columns and followup stories?

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

Friday, August 1, 2014

Weekly Tax Roundup

August 1, 2014 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Weekly SSRN Tax Roundup

August 1, 2014 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Weekly Student Tax Note Roundup

August 1, 2014 in Scholarship, Tax, Weekly Student Tax Note Roundup | Permalink | Comments (0)

Dhammika Dharmapala Leaves Illinois for Chicago

Dharmapala (2014)Dhammika Dharmapala is leaving his tenured position at Ilinois for a tenured position at Chicago, beginning in the 2014-15 academic year:

He serves on the Board of Directors of the American Law and Economics Association, and formerly served on the Board of Directors of the National Tax Association. Until recently, he was Editor-in-Chief of the peer-reviewed journal International Tax and Public Finance. He has previously held postdoctoral or visiting positions at Harvard, Michigan, Georgetown, and the Australian National University. His PhD thesis (in Economics at the University of California at Berkeley) was awarded the National Tax Association’s Outstanding Doctoral Dissertation Award. His scholarship, which spans the fields of taxation, the economic analysis of law, and corporate finance and governance, has been published in leading scholarly journals in law, economics and finance. It has also been cited in various media outlets, including the New York Times, the Washington Post, Bloomberg Businessweek, and The Economist.

Dhammika suffered serious injuries in a racially-motivated knife attack in Champaign-Urbana in 2011.

For the six other Tax Prof lateral moves for 2014-15, see here.

August 1, 2014 in Legal Education, Tax, Tax Prof Moves | Permalink | Comments (1)

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

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

The IRS Scandal, Day 449

IRS Logo 2New York Observer:  Did The White House Know About the IRS Emails? The IRS, the President, and his No. 1 Muse: Kathryn Ruemmler, by Sidney Powell:

The president’s longest serving White House counsel, Kathryn Ruemmler, was, until her sudden departure for Latham & Watkins, “a regular presence in the Situation Room and the Oval Office, making legal judgments and helping coach other senior officials on how to discuss them publicly,” according to the Washington Post. Our first article, “All The President’s Muses,” described Ms. Reummler’s outsized role in the aftermath of the Benghazi tragedy. It’s undisputed she starred in the president’s expansive use of executive powers, increased secrecy and recent Supreme Court reversals.

With the near daily revelations from the IRS, the question becomes, what exactly might Ms. Ruemmler know?

The Inspector General of the Treasury confirmed that the IRS targeted the president’s political opposition with audits, harassment and denials of tax-exempt status. Patrick Howley reported from congressional hearings that even more IRS computers surrounding Lois Lerner and the White House had crashed. Now the IRS is claiming that the number is greater than seven (the prior count) but fewer than 20. There may be emails on back-up devices, but the IRS still claims it isn’t sure.

The burning question is: have they looked in the White House? ...

Ms. Ruemmler’s recent midnight departure from the White House left her actions largely unscrutinized. Yet, she was squarely in the middle of the IRS controversy from the very beginning. As she told the Wall Street Journal, “The White House really sees everything, and you touch everything.” ...

As White House counsel, Ms. Ruemmler led the president in all federal appointments. Her fingerprints are all over the president’s attempt to appoint Mary Smith, a colleague from Ms. Ruemmler’s days in President Clinton’s Counsel’s office, to head the powerful Tax Division of the Department of Justice. Senator Grassley blocked that confirmation, leaving the White House “very upset.” In response, Lois Lerner suggested auditing Senator Grassley.

Not long ago, the president said he knew nothing about the IRS target-hunting. Roger Aronoff reported that both the White House Chief of Staff and White House Counsel Ms. Ruemmler knew about the targeting of conservative groups at least a month before (the now infamous) Ms. Lerner “planted a question” regarding the IRS’ abusive actions. “President Obama later claimed on national television that in terms of the IRS scandal, there wasn’t a ‘smidgeon of corruption’ in his administration, and blamed the whole episode on ‘bone-headed decisions’ of bureaucrats.”

Ms. Ruemmler claimed she did not tell the president—prompting even some Democrats, including Lanny Davis, a prominent Democratic crisis manager, to call for her resignation more than a year ago. Yet, she remained safely in place.

“Either Ruemmler was incredibly incompetent or the White House is lying about when Obama knew of the scandal,” writes Ed Morrissey at Hot Air. “We got a big hint . . . when Obama changed the context of a question about his awareness of the scandal to his awareness of the IG report, which is pointedly not the same thing.” ...

In an incredible stroke of luck, the emails on multiple computers that might reveal IRS agents’ communications with the White House were precisely the ones that mysteriously disappeared.

That lucky streak continued when by mere happenstance Ms. Ruemmler left the White House shortly before IRS Commissioner Koskinen was forced to admit that thousands of emails between Ms. Lerner, the White House and others were “missing.” ...

These IRS emails are today’s White House Watergate tapes. Who and how many people in the White House were recipients or senders? Surely, their computers haven’t crashed, too. How could 155 visits by a key IRS agent be missed by White House Counsel—the president’s fiercest protector?

So what did Ms. Ruemmler know and when did she know it?

Continue reading

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

Thursday, July 31, 2014

Jon Stewart and Stephen Colbert on Tax Inversions

Oei: Taxing Bankrupts

Shu-Yi Oei (Tulane), Taxing Bankrupts, 55 B.C. L. Rev. 375 (2014):

When a debtor goes bankrupt and limited assets have to be divided between competing creditors, should unpaid taxes owed to the government be paid before the debts owed to other creditors? While the contemporary trend has been towards a reduction of such "priority" for tax debts in bankruptcy, this Article defends the award of tax priority. Insofar as bankruptcy protection transfers the risk of financial distress from a debtor to her creditors, the tax priority debate should be understood as a fight about how much debtor default risk the government should have to assume relative to other creditors. This Article argues that the government’s share of debtor default risk should be limited through the grant of tax priority because, contrary to the claims of priority’s critics, the government is constrained in its ability to diversify against such risk, via either substantive tax policy or changes in tax administration. Therefore, greater bankruptcy risk exposure can compromise the government’s ability to perform other important functions. In sum, tax priority serves as an important structural limit on the government’s bankruptcy risk burden and safeguards the myriad important functions of government.

July 31, 2014 in Scholarship, Tax | Permalink | Comments (0)

NY Governor Suspends 40 Tax Preparers for Not Filing Their Own Returns

New York Times, Governor’s Office Suspends 40 Tax Preparers for Not Filing Own Returns:

The governor’s office announced on Wednesday that it had suspended 40 tax preparers who, despite their profession, did not file personal income taxes.

The suspensions are part of a larger effort to regulate the tax preparation industry in the state, which serves over 7 million people and has been tarnished by examples of incompetence and fraud. The 40 people named in this round of suspensions were accused of a more mundane transgression: not filing their state income taxes in 2011 and 2012. ...

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July 31, 2014 in Tax | Permalink | Comments (0)

NY Times: Is It Time to Stop Obsessing About Income Inequality?

New York Times:  Income Inequality and the Ills Behind It, by Eduardo Porter:

Is it time to stop obsessing about inequality?

Perhaps it was President Obama’s speech last December, calling the nation’s vast income gap “the defining challenge of our time.” The American publication of the French economist Thomas Piketty’s blockbuster Capital in the Twenty-First Century must have helped.

Whatever the reason, suddenly inequality seems to be not only at the top of the liberal agenda, but in the thoughts of concerned American voters.

Yet amid the denunciations of inequity as the major evil of our era, persistent voices — mostly but not exclusively from the political right — have been nibbling away at the concern over distribution that is taking over the zeitgeist. ... [T]he critique does add up to a coherent argument: The income gap cleaving society between the rich and the rest may, in fact, be a red herring.

CowenIt is not only that the accumulation of income at the apex of the pyramid of success is not the nation’s main problem. There is little we can do to redress it anyway. “The returns to growth are going to people in other countries, most notably China, and generally to people with high I.Q., no matter where they live,” said Tyler Cowen, a professor of economics at George Mason University and a contributor to the Economic View column in The New York Times. “I don’t really know how you could undermine this dynamic, short of wrecking the world. Trying to deny that logic is going to fail or worse, backfire.”

Mr. Cowen, who describes himself as a libertarian with a lowercase “l,” is the author of Average Is Over: Powering America Beyond the Age of the Great Stagnation (Dutton, 2013), which posits that technology and globalization have essentially split the labor market in two: high and low earners. Far fewer stable jobs are left over in the middle to support what through much of the 20th century we called the middle class.

In his view, the defining challenge of our era is that workers in the bottom half of the distribution can no longer trust that their living standard will double every generation. “The right moral question is ‘are poor people rising to a higher standard of living?’ Inequality itself is the wrong thing to look at,” he told me. The real problem is slow growth.

(Hat Tip: Mike Talbert.)

July 31, 2014 in Tax | Permalink | Comments (4)

The Research Productivity of New PhDs in Economics

John P. Conley (Vanderbilt University) & Ali Sina Önder (University of Bayreuth), The Research Productivity of New PhDs in Economics: The Surprisingly High Non-Success of the Successful:

Our evidence shows that only the top 10–20 percent of a typical graduating class of economics PhD students are likely to accumulate a research record that might lead to tenure at a medium-level research university. Perhaps the most striking finding from our data is that graduating from a top department is neither necessary nor sufficient for becoming a successful research economist. Top researchers come from across the ranks of PhD-granting institutions, and lower-ranked departments produce stars with some regularity, although with lower frequency than the higher-ranked departments. Most of the graduates of even the very highest-ranked departments produce little, if any, published research. Indeed, we find that PhD graduates of equal percentile rank from certain lower-ranked departments have stronger publication records than their counterparts at higher-ranked departments. In our data, for example, Carnegie Mellon’s graduates at the 85th percentile of year-six research productivity outperform 85th percentile graduates of the University of Chicago, the University of Pennsylvania, Stanford, and Berkeley.

Econ

July 31, 2014 in Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 448

IRS Logo 2House Ways & Means Committee Press Release, Camp Sends More Evidence of Criminal Wrongdoing to DOJ (July 30, 2014):

Today, Ways and Means Committee Chairman Dave Camp (R-MI) sent additional evidence to the Department of Justice (DOJ) regarding the April 9, 2014 criminal referral letter which laid out evidence of possible criminal wrongdoing by former IRS employee Lois Lerner uncovered through the Committee’s investigation.

In releasing the letter, Camp stated, “Despite the serious investigation and evidence this Committee has undertaken into the IRS’s targeting of individuals for their beliefs, there is no indication that DOJ is taking this matter seriously.  In light of this new information, I hope DOJ will aggressively pursue this case and finally appoint a special counsel, so the full truth can be revealed and justice is served.”

In the letter to DOJ, Chairman Camp revealed:

Lerner had a bias against conservatives:

A newly discovered email exchange from Ms. Lerner’s official IRS email account, dated November 9, 2012, directly demonstrates Ms. Lerner’s deep animus towards conservatives, which she refers to as “---holes.”   Lerner further illustrates her disgust with conservatives, even suggesting they will ruin the country.  In her email, Lerner states: “So we don't need to worry about alien teRrorists. (sic) It's our own crazies that will take us down.”  This email shows that Ms. Lerner’s mistreatment of conservative groups was driven by her personal hostility toward conservatives.

Lerner used her personal email for official business, including taxpayer information:

The Committee also found that Lerner used her personal email for official business, including confidential return information.  The Committee believed that further investigation, using resources available to the Department of Justice, could reveal whether there was unauthorized disclosure of taxpayer information in violation of the law.  A newly discovered email from February 22, 2012 shows an exchange between Ms. Lerner and an IRS IT professional regarding a “Virus on Home PC.”  In the exchange, Ms. Lerner indicates that she kept work information on her home computer, some of which may have been lost.  She further states that her computer may have been “simply hacked because my password was too simple.”  This exchange further raises concerns that taxpayer information may have been leaked.  

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July 31, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Wednesday, July 30, 2014

Experts Assess Whistleblower's Lawsuit Challenging Vanguard's Tax Structure

Following up on Saturday's post, Former Vanguard Tax Lawyer Files Whistleblower Suit Alleging Mutual Fund Giant Became Low-Cost Leader by Evading $1 Billion in Taxes:  Philadelphia Inquirer, Vanguard's Singular Model Is Under Scrutiny:

VanguardVanguard Group stands atop the mutual fund business, and credits its "unique" structure: The largest mutual fund company is owned, not by for-profit investors, but by more than 100 of Vanguard's own mutual funds, which are owned by millions of clients. Vanguard says this frees managers to "focus on keeping costs as low as possible," passing savings to clients through lower fees for investment advice and other support services.

Vanguard's singular model is now under scrutiny. One of Vanguard's own tax lawyers has blown a whistle on its practices. In his lawsuit filed under seal in the New York State Court for Manhattan before he was fired by Vanguard in 2013, Daniel Danon alleges Vanguard's low costs are based on "illegal" income tax avoidance.

Vanguard denies wrongdoing. The company, based in Malvern, said Danon's complaint "is without merit" and promises to "vigorously defend" against it in court. Vanguard traces its client-owned structure to its founding in 1975. Government regulators have had almost 40 years to complain, if there were a problem.

Still, corporate tax lawyers [Stanley Kull, David Shakow, Lee Sheppard, Robert Willens] and mutual fund industry observers contacted by The Inquirer say that Danon is basing his arguments on well-known provisions of federal tax law - and that his insider analysis, if upheld by courts and adopted by the IRS, could provoke changes, and perhaps reduce Vanguard's cost advantage in the marketplace.

July 30, 2014 in Tax | Permalink | Comments (0)

House May Vote This Year to Repeal Estate Tax

Bloomberg, House May Vote This Year to Repeal Estate Tax, Camp Says:

Form 706Republicans are considering voting this year to repeal the U.S. estate tax, said House Ways and Means Chairman Dave Camp. Camp, a Michigan Republican, told reporters in the Capitol today that many recently elected U.S. House members haven’t had a chance to vote on the issue. He said no final decisions have been made. “It’s been a long time since we’ve had a vote on total repeal,” he said. “Obviously, I don’t believe death should be a taxable event.”

The measure would probably pass the House, given that more than half of the House members are co-sponsoring a repeal bill. President Barack Obama and many Democrats favor going in the other direction and expanding the estate tax, so the proposal stands little chance of becoming law.  

July 30, 2014 in Tax | Permalink | Comments (0)

Law Professor Blogs Network Launches International Financial Law Prof Blog

LPBN LogoThe Law Professor Blogs Network is thrilled to announce the launch of International Financial Law Prof Blog, edited by William Byrnes (Thomas Jefferson), Gary Heald (Georgetown) & David Herzig (Valparaiso).

With the support of our sponsor, Wolters Kluwer Law & Business/Aspen Publishers, the Network is seeking to expand in two ways.

First, I am actively recruiting law professors to launch blogs in other areas of the law school curriculum not currently covered by the Network, including Administrative Law, Bankruptcy, Intellectual Property, National Security, Native American Law, Race and the Law, and Trial Advocacy.

Second, I am actively recruiting law professors to affiliate their existing blogs with the Network, like Brian Leiter's Law School Reports, Brian Leiter's Law School Rankings, Mirror of Justice, REFinBlog, The Right Coast, and Sentencing Law and Policy

The Network offers law professors the premier blogging platform and the opportunity to share in growing sponsorship and advertising revenues. For more information about these opportunities, see here.

July 30, 2014 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

Grewal: Petaluma and the Limits of Treasury's Authority

Tax Analysys Logo (2013)Andy Grewal (Iowa), Petaluma and the Limits of Treasury's Authority, 144 Tax Notes 479 (July 28, 2014):

In a prior article, I explained how taxpayers could make arguments that would potentially avoid the Supreme Court's adverse holdings in United States v. Woods. The Court deliberately left one issue open, citing a brief that I had submitted, and another issue went unacknowledged but can still be presented by taxpayers.

In Petaluma v. United States, currently pending in the D.C. Circuit, the taxpayer has adopted the regulatory arguments I presented in the earlier article. Consequently, what was once a mind-numbing case about partnership audit procedure has become a case about fundamental tax and administrative law doctrines.

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July 30, 2014 in Scholarship, Tax | Permalink | Comments (1)

The IRS Scandal, Day 447

IRS Logo 2The House Oversight & Government Reform Committee holds a hearing today on IRS Abuses: Ensuring that Targeting Never Happens Again:

  • David Keating (Center for Competitive Politics)
  • Cleta Mitchell (Foley & Lardner)
  • James Sherk (Heritage Foundation)
  • Hans A. von Spakovsky (Heritage Foundation) 

Wall Street Journal:  GOP Report Floats IRS Changes on Tax-Exempt Group Oversight:

As the IRS probe grinds on, congressional Republicans are floating ideas to ensure IRS targeting of conservative groups doesn’t happen again. While they don’t call for ripping up the floorboards at the agency’s Washington headquarters, they come pretty close, according to a new report reviewed by the Wall Street Journal.

The House Oversight and Government Reform Committee report, prepared in advance of a hearing scheduled for Wednesday, recommends getting the IRS out of the business of regulating political activities by tax-exempt groups in order to ensure its continued objectivity.

“Congress must disentangle politics from the IRS,” the report said. “To regain the trust of American taxpayers, the IRS must return to its traditional role as a dispassionate administrator of the federal tax code.” ...

Perhaps the most eye-catching of the ideas in the report: eliminating the IRS commissioner job. Republicans say the commissioner structure has provided insufficient oversight of the agency at a time when its workload has been expanding rapidly.

Instead, lawmakers said, Congress should turn the IRS over to a bipartisan commission, like the ones that runs some regulatory agencies.

Wall Street Journal editorial:  The IRS's Foreign Policy:

The IRS has stuck by its story that tax-exempt applications by conservatives got slow-rolled because of bureaucratic bungling not because the groups opposed President Obama's policies. Now the slow drip of email evidence to congressional investigators is casting further doubt on that tale.

In 2009 the Pennsylvania group Z Street applied for tax-exempt status for its mission of educating people about Israel-related issues. In 2010 an IRS agent told Z Street that its application was delayed because the tax agency's Washington, D.C. office was giving special scrutiny to groups whose missions might conflict with Administration policies. The IRS's "Be On the Lookout" list that November also included red flags for groups referring to "disputed territories."

Z Street sued in August 2010 for viewpoint discrimination and its case is headed for discovery in federal court. Now emails uncovered by the House Ways and Means Committee show that the IRS and State Department were conferring in 2009 about pro-Israel groups like Z Street and considering arguments to deny their tax-exempt applications. ...

On Monday the IRS filed an appeal of the judge's decision denying its motion to dismiss Z Street's case. The government says the action stops all discovery while the appeal is pending, a process that could take months or even years. By filing the appeal on the last possible day, the Justice Department is running out the clock on discovery during the remainder of the Administration.

This is a whole lot of effort to prevent discovery in a case that is not even seeking damages. Ways and Means uncovered the email exchange between State and the IRS only after Treasury was forced to turn over documents it had previously withheld. What else did it lose in the ether?

Continue reading

July 30, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Tuesday, July 29, 2014

Rostain & Regan: The IRS Under Siege

ConfidenceTanina Rostain (Georgetown) & Milton C. Regan, Jr. (Georgetown), Confidence Games: Lawyers, Accountants, and the Tax Shelter Crisis (MIT Press, 2014):

Confidence Games provides an account of the wave of tax shelters that occurred at the turn of the twenty-first century. During this period, some of America’s most prominent law and accounting firms created and marketed products that enabled the very rich — including newly minted dot-com millionaires — to avoid paying their share of taxes by claiming benefits not recognized by law. These abusive tax shelters bore names like BOSS, BLIPS, and COBRA and were developed by such prestigious firms as KPMG, Ernst & Young, BDO Seidman, the now defunct Jenkens & Gilchrist and Brown & Wood, now merged into Sidley Austin. These shelters brought in hundreds of millions of dollars in fees from clients and deprived the U.S. Treasury of billions in revenue before the IRS and Justice Department stepped in with civil penalties and criminal prosecutions targeting the professionals and firms involved. As we suggest, the decade of tax shelter activity between the mid-1990s and mid-2000s is the most serious episode of professional misconduct in the history of the American bar.

Chapter 1, The IRS Under Siege, describes how an overstretched and under-resourced IRS came under attack in the late 1990’s by anti-tax and anti-government members of Congress.

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July 29, 2014 in Book Club, Scholarship, Tax | Permalink | Comments (0)

More Tax Inversion News

Jost: IRS Releases Premium Tax Credit Rules and Draft Forms

Timothy Jost (Washington & Lee), Implementing Health Reform: IRS Releases Premium Tax Credit Rules and Draft Forms:

Although the focus of activity the week of July 21 was in the courts, the agencies were not totally silent. On July 24, 2014 the Internal Revenue Service released final and temporary  and proposed regulations addressing issues that are presented by the premium tax credit program. The IRS also released drafts of the forms that individuals, insurers, and employers will use for reporting information to the IRS necessary for reconciliation of premium tax credits and for the enforcement of the individual and employer mandate programs. Finally, the IRS set the maximum individual mandate penalty for individuals whose income is high enough that they pay the penalty as a percentage of income rather than a flat dollar amount. This amount is established by the statute as the average cost of a bronze level plan for the applicable family size for 2014 and was set by the IRS at $2,448 per individual annually, up to $12,240 for families of five or more.

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July 29, 2014 in IRS News, Scholarship, Tax | Permalink | Comments (0)

Foster: Partisan Politics and Income Tax Rates

William E. Foster (Washburn), Partisan Politics and Income Tax Rates, 2013 Mich. St. L. Rev. 703:

With income tax reform dominating so much of the current political discourse, now is an optimal time for tax scholars to reflect on the lessons and trends from a century of legislative tinkering with the primary revenue-generating device in the United States. Tax rate changes do not occur in a vacuum, and this article explores one increasingly prominent and often overlooked ingredient in the mixture of variables that can produce or inhibit tax reform ― partisan politics. It does so by comparing individual income tax rates with partisan control of federal political bodies. This article reviews majority party status in the House of Representatives and the Senate, and control of the presidency at times of revisions to top marginal tax rates applicable to various income groups, and notes larger rate trends in the parties’ respective eras of most significant influence. Despite the limitations inherent in isolating a single influential factor, the data analyzed in this article provides strong support for the following trends: higher income earners are the tax rate battleground for party policy implementation; a vast political mandate represented by control of the House, Senate, and presidency is usually necessary to accomplish significant rate revisions; when a sufficient political mandate is achieved, the parties’ implementation of rate changes follows their respective rhetorical associations; and in the end, absent armed conflict or economic crisis, sizeable rate changes are exceptionally rare. These extractions from a century of legislative maneuvers bring scholars closer to unearthing the political recipe for tax rate reform, and accordingly, to a fuller understanding of the necessary components of tax policy implementation.

July 29, 2014 in Scholarship, Tax | Permalink | Comments (0)

Washington University Symposium: A New Framework for International Taxation

Wash U.Symposium, Conceptualizing a New Institutional Framework for International Taxation, 44 Wash. U. J.L. & Pol'y 1-101 (2014):

July 29, 2014 in Conferences, Scholarship, Tax | Permalink | Comments (0)

Polsky: Private Equity Monitoring Fees as Disguised Dividends

Tax Analysys Logo (2013)Gregg D. Polsky (North Carolina), Private Equity Monitoring Fees as Disguised Dividends: Collateral Impact, 143 Tax Notes 1053 (June 2, 2014):

In an earlier article (The Untold Story of Sun Capital: Disguised Dividends, 142 Tax Notes 556 (2014)), I argued that in many cases monitoring fees paid by private-equity controlled companies should be recharacterized as nondeductible dividends. This recharacterization would increase the tax liability of portfolio companies because they deduct monitoring fees as compensation. In response, some have argued that the recharacterization of monitoring fees as dividends would also reduce the tax liability of private equity managers. This article argues that there would in fact be no tax benefit to the manager or to the vast majority of private equity fund investors. The recharacterization could in some cases provide a tax advantage to the small minority of private equity investors who are U.S. individuals but the advantage would be constrained by the overall limitation on miscellaneous itemized deductions and, in any event, would typically pale in comparison to the additional taxes due from the portfolio company.

July 29, 2014 in Scholarship, Tax | Permalink | Comments (0)

Paleveda: Optimal Marginal Tax Rates -- A Solution to Wealth Disparity

Nicholas A. Paleveda (Northeastern), Optimal Marginal Tax Rates -- A Solution to Wealth Disparity:

Optimal Marginal Tax rates may be used to lower the potential for wealth disparity and increase productivity at the same time. The author reviews the correlation of the optimal marginal tax rates by historical data.

July 29, 2014 in Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 446

Monday, July 28, 2014

Median Household Net Worth Has Fallen 36% Since 2003

New York Times:  The Typical Household, Now Worth a Third Less:

Economic inequality in the United States has been receiving a lot of attention. But it’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.

The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.

Wealth 1

Wealth 2

July 28, 2014 in Tax | Permalink | Comments (1)

Morrow: Rethinking Valuation Discounts for Built–In Gains

Rebecca N. Morrow (Wake Forest), Valuation in Light of Uncertainty: How Stock Option Pricing Models Can Inform More Accurate Valuation Discounts for Built–In Gains, 102 Ky. L.J. 653 (2014):

Part I of this Article describes the inconsistent historical treatment of valuation discounts for future tax liabilities, including a currently unresolved circuit split. Part II proposes that such discounts should be calculated through the use of a modified binomial method in order to most accurately account for uncertainties about when future taxes will be incurred and what tax rate will apply at the time they are incurred. Part III anticipates and addresses potential criticisms of this proposal.

July 28, 2014 in Scholarship, Tax | Permalink | Comments (0)

Mark Cuban on Tax Inversions: If You Move Overseas, I’m Selling Your Stock

Wall Street Journal, Mark Cuban on Tax Inversions: If You Move Overseas, I’m Selling Your Stock:

CubanBillionaire investor Mark Cuban isn’t a fan of tax inversions.

In a series of tweets and interviews, the owner of the Dallas Mavericks said companies that buy a company to take advantage of another country’s lower tax rate are “gaming the system.” If the trend continues, he expects taxes in the U.S. will increase across the board.

He suggested investors should consider selling shares of companies that utilize the tactic. If I own stock in your company and you move offshore for tax reasons I’m selling your stock,” Mr. Cuban said Friday morning on Twitter “There are enough investment choices here.” In a subsequent tweet, he added: “When companies move off shore to save on taxes, you and I make up the tax shortfall elsewhere sell those stocks and they won’t move.”

July 28, 2014 in Tax | Permalink | Comments (1)

Platinum Tax Brackets

Frank & ErnestFunny tax reform suggestion from Frank & Ernestplatinum tax brackets.  (Hat Tip: Andy Morriss.)

July 28, 2014 in Tax | Permalink | Comments (0)

Krugman: Left Coast Rising

New York Times:  Left Coast Rising, by Paul Krugman (Princeton):

CaliforniaIn 2012, ... Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare.  ... Needless to say, conservatives predicted doom. ...

What has actually happened? There is, I’m sorry to say, no sign of the promised catastrophe. If tax increases are causing a major flight of jobs from California, you can’t see it in the job numbers. Employment is up 3.6 percent in the past 18 months, compared with a national average of 2.8 percent. ...

For the big difference between the two states, aside from the size of the oil and gas sector, isn’t tax rates. it’s housing prices. Despite the bursting of the bubble, home values in California are still double the national average, while in Texas they’re 30 percent below that average. So a lot more people are moving to Texas even though wages and productivity are lower than they are in California. ... [T]axes aren’t important at all.

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July 28, 2014 in Tax | Permalink | Comments (1)

Shay: Take the Tax Juice Out of Corporate Expatriations

Tax Analysys Logo (2013)Stephen E. Shay (Harvard), Mr. Secretary, Take the Tax Juice Out of Corporate Expatriations, 144 Tax Notes 473 (July 28, 2014):

Shay describes the principal tax benefits companies seek from expatriating, and he outlines regulatory actions that can be taken without legislative action to materially reduce the tax incentive to expatriate.

Bloomberg, Lew Can Use Tax Rule to Slow Inversions, Ex-Official Says:

The U.S. Treasury Department should use immediate stopgap regulations to make offshore transactions known as corporate inversions less lucrative, said the department’s former top international tax lawyer.

The administration can unilaterally limit inverted companies from taking interest deductions in the U.S. or from accessing their foreign cash without paying U.S. taxes, Stephen Shay said in an interview and in an article published today in Tax Notes.

July 28, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0)

Ed Kleinbard Named Johnson Professor in Law and Business at USC

USC Press Release:

KleinbardEdward Kleinbard, an internationally recognized tax scholar and author of We Are Better Than This: How Government Should Spend Our Money [(Oxford University Press Oct. 1, 2014)], has been named the Ivadelle and Theodore Johnson Professor in Law and Business at the USC Gould School of Law.

Dean Robert K. Rasmussen called Kleinbard “one of his generation’s leading tax attorneys in the world.  Ed Kleinbard’s career is unparalleled,” Rasmussen said. “The award of the Johnson Professorship signals that Ed is now one of the leading tax scholars in the academy. His work is a unique blend of tax theory with the insights and knowledge gained from years of practice. His book, We Are Better Than This, charts the way forward for us as a nation. All of us at the Gould School of Law are fortunate that he is our colleague and teacher.”

Kleinbard’s scholarship has received praise both inside and outside the legal academy. He has been called “a rock star in the world of tax law” by New York Times Pulitzer Prize-winning reporter Gretchen Morgenson and “a superstar tax practitioner, policy adviser and scholar,” by Harvard University President Emeritus Larry Summers, a former secretary of the U.S. Treasury. ...

Kleinbard joined USC Gould in 2009 after serving as the chief of staff of the U.S. Congress’ Joint Committee on Taxation, the nonpartisan tax resource to Congress. He previously worked on Wall Street for two decades as a partner in the New York office of Cleary Gottlieb Steen & Hamilton LLP.

July 28, 2014 in Legal Education, Tax | Permalink | Comments (1)

The IRS Scandal, Day 445

IRS Logo 2Wall Street Journal:  The ObamaCare-IRS Nexus, by Kimberley A. Strassel:

The IRS (famed for nitpicking and prosecuting the tax law), chose to authorize hundreds of billions of illegal subsidies without having performed a smidgen of legal due diligence, and did so at the direction of political taskmasters. The agency's actions provided aid and comfort to elected Democrats, even as it disenfranchised millions of Americans who voted in their states to reject state-run exchanges. And Treasury knows how ugly this looks, which is why it initially stonewalled Congress in its investigation—at first refusing to give documents to investigators, and redacting large portions of the information.

Administration officials will continue to use the IRS to try to improve its political fortunes. The subsidy shenanigans are merely one example. Add Democrats' hijacking of the agency to target and silence political opponents. What you begin to see are the makings of a Washington agency—a body with the power to harass, to collect, to fine, to imprison—working on behalf of one political party. Richard Nixon, eat your heart out.

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July 28, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

TaxProf Blog Weekend Roundup

Sunday, July 27, 2014

WaPo: An Interactive Guide to Decide Whether to Leave the U.S. For Lower Taxes

Washington Post, Should You Leave the U.S. For Lower Taxes? An Interactive Guide to Legal Tax Arbitrage:

Washington Post LogoWe know that corporations enjoy many of the legal rights of individuals these days. In this situation, they really have more rights, as Post columnist Catherine Rampell notes today. The number of people renouncing their citizenship for tax reasons has skyrocketed in recent years, as the IRS has stepped up its enforcement of foreign bank accounts, but individuals pay a much higher price — financially, practically, and in the popular consciousness.

To help you figure out whether or not to become an expatriate, whether corporate or individual, we’ve put together this handy flowchart. Under no circumstances should it be considered actual tax management advice.

July 27, 2014 in Tax | Permalink | Comments (1)

Top 5 Tax Paper Downloads

SSRN LogoThere is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with new papers debuting on the list at #1 and #3:

  1. [291 Downloads]  What Would Yale Do If It Were Taxable?, by Patrick Geddes (Aperio Group), Lisa Goldberg (UC-Berkeley) & Stephen Bianchi (UC-Berkeley)
  2. [240 Downloads]  Sales Suppression as a Service (SSaaS) & the Apple Store Solution, by Richard Ainsworth (Boston University)
  3. [227 Downloads]  Guide to FATCA Compliance (Chapter 1, Background and Current Status of FATCA) (LexisNexis 2d ed. 2014), by William Byrnes (Thomas Jefferson), Denis Kleinfeld, & Alberto Gil Soriano
  4. [213 Downloads]  A State Tax Approach to Regulating Greenhouse Gases Under the Clean Air Act, by Samuel Eisenberg (Stanford), Michael Wara (Stanford), Adele Morris (Brookings Institution), Marta Darby (Stanford) & Joel Minor (Stanford)
  5. [203 Downloads]  Desperate Retirees: The Perplexing Challenge of Covering Retirement Health Care Costs in a YOYO World, by Richard L. Kaplan (Illinois)

July 27, 2014 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

Do You Work Too Much?

New York Times op-ed:  Do You Work Too Much?, by Anna North:

Overworked
The American economy generally operates on the assumption that the more hours you work, the better an employee you are. But increasingly, researchers and workers themselves are saying that working to the point of burnout can be unhealthy, unproductive, and even dangerous — and some are advocating for large-scale solutions that tackle the problem at its source.

At Time, Alexandra Sifferlin looks at burnout among physicians. She writes, “Research shows that up to 40% of U.S. doctors experience emotional, physical, and psychological burnout from their jobs, and the consequences are no different for them than they are for people in other occupations — substance abuse and cutting corners.” And she cites a paper published (appropriately enough) in the new journal Burnout Research, in which the psychology professor Anthony Montgomery delves into some possible causes of doctor burnout — and its dangers. He argues that the medical profession may be exceptionally bad at taking care of its own, which hampers doctors’ ability to care for others. ...

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

The IRS Scandal, Day 444

Saturday, July 26, 2014

Former Vanguard Tax Lawyer Files Whistleblower Suit Alleging Mutual Fund Giant Became Low-Cost Leader by Evading $1 Billion in Taxes

Wall Street Journal, Former Employee Sues Vanguard, Alleges False Tax Filing:

VanguardA former employee of Vanguard Group Inc. has sued the mutual-fund company in New York, saying it has avoided paying federal and state taxes and sheltered hundreds of millions of dollars annually.

The civil suit, unsealed in the Supreme Court of New York on Friday, accuses the Malvern, Pa.-based firm of operating an illegal tax shelter for nearly 40 years, thus avoiding $1 billion of U.S. federal income tax and at least $20 million of New York tax over the last 10 years, according to a copy of the complaint. The suit was filed by David Danon, whose LinkedIn profile describes him as an associate counsel at the company from August 2008 to June 2013. Mr. Danon is requesting all costs of filing the lawsuit as well as 15% to 30% of any money recovered by the state and local governments, including all proceeds of any related action.

A spokesman for Vanguard said in a statement that the company operates under a unique mutual structure and has a long history of serving the best interests of shareholders. "We believe that this case is without merit, and we intend to defend the matter vigorously," the spokesman said.

Philadelphia Inquirer, Suit Alleges Vanguard Wrongly Avoids Paying Taxes:

Vanguard "has operated as an illegal tax shelter for nearly 40 years, providing services to [its] funds at prices designed to avoid federal and state income tax, sheltering hundreds of millions of dollars of income annually, avoiding approximately $1 billion of U.S. federal income tax and at least $20 million of New York tax over the last 10 years," alleges the lawsuit, which was filed by David Danon of Wayne before he was terminated by Vanguard in 2013. ...

Danon's attorney explained why the case was filed in New York. "New York is the only jurisdiction that allows False Claims Act complaints to be filed for unpaid federal taxes," said Brian Mahany of Milwaukee. "We believe he was terminated because, even though this was under seal, they figured out he was a whistle-blower."

In an interview with The Inquirer, Danon, a 1998 magna cum laude graduate of Fordham Law School who worked at Sullivan & Cromwell L.L.P., Cleary Gottlieb Steen & Hamilton L.L.P., and other New York corporate law firms before joining Vanguard in 2008, said he had voiced his concerns to Vanguard officials and finally went outside the company when they refused to take steps to comply with the law as he viewed it. Danon said other Vanguard principals who disagreed with the company's tax position had also left Vanguard.

Danon has also talked with IRS and SEC investigators about his allegations, The Inquirer has learned. The SEC and IRS typically do not comment on possible investigations.

In the lawsuit, Danon details his allegation that Vanguard has been illegally avoiding taxes.

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July 26, 2014 in Tax | Permalink | Comments (8)

The Happiest (Charlottesville) and Unhappiest (Scranton) Places in America

Vox:  The Happiest Places in America, by Danielle Kurtzleben:

If New York is so unhappy, why do so many people keep living there? That's one of the many questions at stake in a new working paper from the National Bureau of Economic Research. [Edward L. Glaeser (Harvard), Joshua D. Gottlieb (British Columbia) & Oren Ziv (Harvard), Unhappy Cities]

Researchers from Harvard and the University of British Columbia used people's self-reported life satisfaction data from the CDC to try to determine a geography of American happiness. What they found is that among the biggest metropolitan areas, the Big Apple is the unhappiest. Scranton, Pennsylvania, takes the honor of the least happy metro area of any size. Meanwhile, Richmond is the happiest large metro area, and Charlottesville, Virginia, is the happiest of any size.

Here's a look at what that geography of happiness looks like, after researchers controlled for demographic characteristics like sex, race, and age. Blue represents the highest happiness measure, and red is the lowest.

Happy

July 26, 2014 in Legal Education, Tax | Permalink | Comments (3)

The IRS Scandal, Day 443

Friday, July 25, 2014

Weekly Tax Roundup

July 25, 2014 in Tax, Weekly Tax Roundup | Permalink | Comments (0)