Top 5 Tax Paper Downloads

There 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 at #4:   

1.  [217 Downloads]  An Evaluation of Federal Tax Policy Based on Judeo-Christian Ethics, by Susan Pace Hamill (Alabama) [blogged here]

2.  [109 Downloads]  The Problem of Tax Law Uncertainty and the Role of Tax Insurance, by Kyle D. Logue (Michigan) [blogged here]

3.  [108 Downloads]  Three Views on the Ethics of Tax Evasion, by Robert W. McGee (Barry University, Andreas School of Business) [blogged here]

4.  [74 Downloads]  Using Deferred Tax Data to Detect Fraud, by Michael Ettredge (University of Kansas, School of Business), Lili Sun (Rutgers University (Newark), Business School), Picheng Lee (Pace University, Luban Business School) & Asokan Anandarajan (New Jersey Institute of Technology, School of Management) [blogged here]

5.  [66 Downloads]  Crime and Punishment in Taxation: Deceit, Deterrence, and the Self-Adjusting Penalty, by Alex Raskolnikov (Columbia) [blogged here]

Britney Spears, Secret Sex Tapes, and Estate Planning Lawyers

Before leaving for the holidays, Joel A. Schoenmeyer of the Death and Taxes Blog shared this funny story:

Britney Spears is suing US Weekly for $20 million over their allegation that Ms. Spears and her husband, Kevin Federline, "feared the release of a secret sex tape, which they had viewed with their estate planning lawyers." ABC News has the story here. I think Ms. Spears has a good case -- in my experience, estate planning lawyers are rarely called in to view secret sex tapes.   

 

SOI Releases New Statistics of Income Bulletin

The Statistics of Income Division has released (IR-2005-147) the Fall 2005 Statistics of Income Bulletin with these new studies:

• Individual Income Tax Returns, 2003, by Michael Parisi & Scott Hollenbeck:

The Bulletin contains an in-depth look at the 130.4 million individual income tax returns filed for tax year 2003, a slight increase from the 130.1 million returns filed for tax year 2002. The adjusted gross income (AGI) less deficit reported on these returns totaled just over $6.2 trillion, while taxable income totaled $4.2 trillion. The largest component of AGI was salaries and wages totaling just over $4.6 trillion. A total of $268.6 billion in business net income was reported on 14.4 million returns. In addition, the Bulletin contains articles with the following information:

• Partnership Returns, 2003, by Tim Wheeler and Nina Shumofsky:

The total number of partnerships increased 5.9% to 2,375,375 for tax year 2003. Since 1994, the number of partnerships has increased at an average annual rate of 4.9%. Total partnership net income (less deficit) increased by 11.4% to $301.4 billion. Partnerships classified in finance and insurance accounted for over half of the increase. Total assets of partnerships reporting balance sheets increased 9.1% to $9.7 trillion for 2003. For the second consecutive year, the number of limited liability companies surpassed all other entity types, including the number of general partnerships, which had been the leader for decades, increasing 15.3% to 1,091,502, about 46.0% of all partnerships.

• Domestic Private Foundations, Tax Years 1993-2002, by Melissa Ludlum:

Tax years 1993-2002 represented a period of both growth and consistency for private foundations. Between those years, the total number of domestic private foundations filing information returns increased 66.7%, from 43,956 returns filed for tax year 1993 to 73,255 filed for 2002. By the end of the period, the aggregate fair market value of total assets held by private foundations had grown by 82.2%, reaching $413.0 billion by tax year 2002. Total disbursements for charitable purposes doubled during this same period.

• Fiduciary Income Tax Returns, Filing Years 2003 and 2004. by Lisa Schreiber:

In 2004, approximately 3.7 million estates and trusts filed income tax returns. The number of forms 1041 filed decreased by 0.5% from the number of returns filed in 2003. Grantor trusts were the most common type of trust for which a Form 1041 was filed in 2003 and 2004. Complex trusts, however, made up the greatest share of aggregate gross income, total deductions and total tax liability in 2003 and 2004. Capital gains made up the largest share of income reported in both years, while income distributions to beneficiaries accounted for the largest portion of deductions claimed.

• Corporate Foreign Tax Credit, 2001, by Scott Luttrell:

The total foreign tax credit claimed by U.S. corporations for tax year 2001 fell by 14.5% to $41.4 billion. As a result of the foreign tax credit benefits, these corporations were able to reduce their U.S. tax liabilities by 31.9%, from $129.3 to $87.9 billion. Corporations claiming a foreign tax credit in 2001 reported worldwide taxable income of $368.1 billion, with 44.8% of it earned from foreign sources.

• U.S. Possessions Corporation Returns, 2001, by Daniel S. Holik:

For tax year 2001, some 171 U.S. corporations reported $1.3 billion of possessions tax credits. The number of U.S. corporations claiming a possessions tax credit and the total amount of the credit reported continued declines that began in the 1990s. Assets and receipts reported for 2001 were $34.1 billion and $25.5 billion, respectively.

• Charities and Other Tax-Exempt Organizations, 2002, by Paul Arnsberger:

Nonprofit charitable organizations exempt from income tax under Internal Revenue Code section 501(c)(3) filed nearly 252,000 information returns for tax year 2002, an increase of 4.6% from the previous year. These organizations held over $1.7 trillion in assets, an increase of 6.3% from 2001, and reported $955 billion in revenue, 72.4% of which came from program services and activities.

• An Analysis of Select Large Nonfinancial Corporations with Total Assets Greater Than $2.5 Billion, Tax Years 1998-2002, by Heather R. Duffy:

This article examines data collected on a select group of large non-financial corporations over a five-year period, tax years 1998 through 2002, representing less than 0.01% of all returns filed. These large non-financial corporations, despite representing such a small percentage of corporations, account for an average of 20.5% of total assets and an average of 29.0% of total receipts of all returns. Most of the large non-financial corporations represented in the analysis are classified in the manufacturing or wholesale and retail trade industrial sectors.

Cohen on "Too Good to Be True" Penalty Standard

N. Jerold Cohen (Sutherland Asbill & Brennan, Atlanta, GA) has published Too Good to Be True and Too Bad to Be True, 109 Tax Notes 1437 (2005), also available on the Tax Analysts web site as Doc 2005-23498, 2005 TNT 238-26:

In this report, the author questions whether it is fair to impose penalties on taxpayers on the grounds that their tax results were "too good to be true" when the literal language of our code often produces results that many would think were either too good or too bad to be true.

Ettredge, Sun, Lee & Anandarajan on Using Deferred Tax Data to Detect Fraud

Michael Ettredge (University of Kansas, School of Business), Lili Sun (Rutgers University (Newark), Business School),  Picheng Lee (Pace University, Luban Business School) & Asokan Anandarajan (New Jersey Institute of Technology, School of Management) have posted Using Deferred Tax Data to Detect Fraud on SSRN.  Here is the abstract:

The objective of this paper is to examine whether deferred tax data potentially can be used to develop red flag signals of earnings-overstatement fraud. We use a sample of 105 firms sanctioned by the SEC (in Accounting and Auditing Enforcement Releases, AAERs) for earnings overstatement fraud, and a sample of 105 control firms matched by year, asset size, and two-digit SIC code. Tax variables examined include book income minus taxable income (BMT), the change in BMT from year-to-year (BMTCHG), deferred tax expense (DTE), and the change in DTE from year-to-year (DTECHG). Each variable is scaled. Our results indicate that among firms reporting positive pretax book income, BMT and DTE are positively and significantly associated with the occurrence of fraud. When both BMT and DTE appear simultaneously in the model, both variables retain significance, and BMT is more significant. Although tax-change-related variables BMTCHG and DTECHG are insignificant, models incorporating their interactions with an indicator for positive book income have significantly better overall fit than the base model. This suggests that BMTCHG and DTECHG also potentially provide evidence of the occurrence of fraud, although they do not perform as well as BMT and DTE. In summary, this study identifies several new tax-related variables that potentially can be used as red flags for fraud detection, and which are not currently in the red flag checklists recommended to auditors by Statement of Auditing Standards No. 99. The findings of this study are also potentially applicable in Canada and internationally since Canadian accounting standards related to deferred taxes are similar to SFAS No. 109, and neither Canadian nor international auditing standards suggest tax-related variables as red flags for fraud.

Christmas for Taxes, Not Turkey

Interesting story from the BBC:  Christmas Used for Tax, Not Turkey.  Here is the opening:

What does Christmas day mean for you ... turkey, presents and time spent with family, perhaps? Some Britons, it seems, shun the festive fun and use Christmas day as a chance to sort out their tax affairs. According to HM Revenue & Customs (HMRC), 306 Britons filed their self assessment tax return online during Christmas day 2004. It said that the festive period was a surprisingly busy time for self assessment filing. In fact, 12,000 returns were filed over last year's four day Christmas holiday period. "We have always recommended that people file early and outside the busiest periods - and we are pleased to see that some taxpayers have taken this to heart, even at Christmas," Roy Massingale, director of self assessment at the HMRC, said.

Tax Court Reinstates Trial Judge's Report in Ballard & Kanter

In Ballard v. Commissioner, 125 S.Ct. 1270 (2005), the Supreme Court reversed the judgments of the Courts of Appeals for the Seventh and Eleventh Circuits in Estate of Kanter v. Commissioner, 337 F.3d 833 (7th Cir. 2003), and Ballard v. Commissioner, 321 F.3d 1037 (11th Cir. 2003), and remanded those cases to the Tax Court "for further proceedings consistent with this opinion."  In two orders issued this week, the Tax Court:

• Struck the Tax Court's memorandum opinion in Investment Research Associates Ltd. v. Commissioner, T.C. Memo. 1999-470
• Reinstated Special Trial Judge D. Irvin Couvillion's original Rule 183(b) report
• Will allow the parties to file objections to the report.

See:

• Ballard v. Commissioner, Nos. 16421-90, 20211-91, 21616-91, 1984-92, 23743-92 & 22884-93 (Dec. 16, 2005)
• Estate of Kanter v. Commissioner, Nos. 712-86, 1350-87, 31301-87, 33557-87, 3456-88, 32103-88 & 26251-90 (Dec. 16, 2005)

Tax Cut Zombies

Interesting NY Times op-ed, Tax Cut Zombies, by Paul Krugman, which addresses the “starve the beast” rationale for tax cuts:

At this point starve-the-beast theory looks as silly as supply-side economics. Although a disciplined conservative movement has controlled Congress and the White House for five years -- and presided over record deficits -- public opposition has prevented any significant cuts in the big social-insurance programs that dominate domestic spending…

In other words, the starve-the-beast theory -- like missile defense -- has been tested under the most favorable possible circumstances, and failed. So there is no longer any coherent justification for further tax cuts.

Republicans have turned into tax-cut zombies. They can't remember why they originally wanted to cut taxes, they can't explain how they plan to make up for the lost revenue, and they don't care. Instead, they just keep shambling forward, always hungry for more.

Dan Shaviro (NYU) responds:

Cute, but in my view Krugman under-estimates the unfalsifiability of starve-the-beast thinking. Counter-factual hypotheticals mean never having to say you’re sorry. No matter how fast spending keeps rising as tax revenues fall, one can always say: “Yes, but if not for the tax cuts, there would have been EVEN MORE spending!” Because this argument rests on a counterfactual, it cannot directly be falsified. True, it can be tested empirically in the sense of testing past correlations between revenue levels and spending levels. Unfortunately, the research that has been done suggests that tax cuts are associated with spending increases, and tax increases with tighter spending, apparently because both respond to whether fiscal discipline is prevalent at any given time.

See Dan's further post here.

Styron, Basciano & Grayson on Mortgage Interest Rates and Points: Practical Advice for Your Clients

W. Joey Styron, Peter Basciano & James M. Grayson (all of Augusta State University, College of Business Administration) have published Mortgage Interest Rates and Points:  Practical Advice for Your Clients, 109 Tax Notes 1431 (2005), also available on the Tax Analysts web site as Doc 2005-24073, 2005 TNT 239-46.  Here is the Introduction:

In the process of arranging for mortgages to purchase or refinance property, clients often seek the advice of a tax professional. One of the issues is the payment of points. All tax professionals who work with individual taxpayers know the basic rules for deducting points. Points paid to acquire the taxpayer's principal residence are immediately deductible. Points paid for refinancing or for purchases of property other than a principal residence must be deducted ratably over the life of the mortgage.

The taxpayer often has the choice of paying points to obtain a lower annual interest rate on the mortgage. Under what conditions would it be advisable to pay points to obtain a lower interest rate? We have developed a model that helps the tax adviser determine if the payment of points is advisable.

Top Tory in Tax Gaffe

Interesting story in today's Daily Record:  Top Tory in Tax Gaffe:

A bitter civil war broke out among Tories yesterday after a senior figure called for the party to "redistribute" wealth away from the rich. Oliver Letwin, who leader David Cameron trusted to overhaul policy, caused uproar by using socialist rhetoric that could split the party. Letwin, who helped create the Poll Tax, said: "It should be an aim to narrow the gap between rich and poor. We do redistribute money and we should redistribute money."

Christmas Gifts for that Special Tax Person

For sale on eBay:  an I.R.S. action figure -- Irwin R. Schyster

The action figure is modeled after WWF wrestler Mike Rotunda:

In the WWF, Rotunda became Irwin R. Shyster (I.R.S.) and he is perhaps best known for this role, more than any other role he has played during his career. Irwin R Shyster was a typical "tax-man" gimmick who harassed all of the faces and fans, urging them to pay their taxes, thus not enduring himself to the fans and other wrestlers (in the storylines).   

 

His signature lines:

• "I'm gonna write you off!"
• "You can pay me now, or you will pay me later!" 
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Our Voices Together

In this holiday season, I want to share with you a heart-wrenching story about one of the true giants in the tax world, C. Eugene Steuerle.  As most readers of this blog know, Gene is a Senior Fellow at The Urban Institute, Co-director of the Urban-Brookings Tax Policy Center, columnist for Tax Notes, and the author or editor of 11 books, more than 150 reports and articles, more than 50 Congressional testimonies or reports, and more than 600 columns. What you may not know is that Gene's wife Norma was among the 59 victims aboard the plane that hijackers crashed into the Pentagon on September 11, 2001.

The L.A. Times today has a wonderful story about Our Voices Together, the charity that Gene and his daughters began with the money they received from the September 11 Victim Compensation Fund.  Here is the lead:

On Sept. 11, 2001, family therapist Norma Steuerle was among the 59 victims aboard a plane that hijackers crashed into the Pentagon. But rather than seek revenge, her husband and daughters chose to create a charity to combat the conditions in which terrorism can thrive. Our Voices Together, which was started on the fourth anniversary of the attacks, supports programs to promote tolerance, social justice, education and economic development around the world. For this holiday season, it is offering an altruistic alternative to traditional gifts.

Please read the whole story here.  I have run numerous posts over the past week with Christmas Gifts for that Special Tax Person.  I can think of no finer gift this holiday season than to make a contribution to this wonderful charity to honor Gene and his wife and family.  To donate, please see here.  (Thanks to Ellen Aprill for passing along this story.)

California Bar Results v. US News & SSRN Rankings

July 2005 California Bar Exam Law School Results (First Time Takers) v. US News & SSRN
CA Bar Rank	School	US News Overall CA Rank	US News Peer CA Rank	SSRN CA Rank
1 (88.7%)	UCLA	3	3	2
2 (88.0%)	Stanford	1	1	1
3 (87.0%)	Boalt	2	2	4
4 (84.3%)	Hastings	6	6	9
5 (81.7%)	USC	4	4	3
6 (80.0%)	USD	8	7	5
7 (75.0%)	Loyola	7	8	6
8 (74.4%)	USF	Tier 3	10	13
9 (73.8%)	Davis	5	5	7
10 (72.6%)	Pepperdine	9	10	16
11 (66.4%)	Southwest.	Tier 3	13	10
12 (63.9%)	McGeorge	10	12	15
13 (62.5%)	Santa Clara	Tier 3	9	12
14 (59.5%)	Chapman	Tier 4	17	11
15 (57.7%)	Cal-Western	Tier 4	14	14
16 (43.8%)	Golden Gate	Tier 4	14	18
17 (39.7%)	Whittier	Tier 4	16	17
18 (38.4%)	T. Jefferson	Tier 4	17	8
19 (24.6%)	Western St.	Tier 4	19	19

For the July 2005 California bar results, see here.  (Hat Tip:  LawSchool.com.)

More on the Tax Gap

Following up on Tuesday's post (Tax Gap at Record High 14.4%) on the new Bureau of Economic Analysis report (Comparison of BEA Estimates of Personal Income and IRS Estimates of Adjusted Gross Income):  Bloomberg has published an interesting article on the subject, Income Tax Gap at $1 Trillion, by Ryan J. Donmoyer.  Here is the opening:

Americans avoided paying taxes on a record $1 trillion in income in 2003, according to a new federal government report. The annual study by the Commerce Department's Bureau of Economic Analysis shows the gap between true income and the amount Americans reported on income-tax filings has increased 35 percent between 2000 and 2003, a period when tax rates were falling. In the previous four decades, the gap has increased when taxes were raised and contracted when rates were lower. The data, based on different assumptions than information collected by the Internal Revenue Service, raise new questions about long-held beliefs that more Americans will comply with tax laws as their tax burden decreases, analysts said. It also increases pressure on Internal Revenue Service law enforcement efforts even as the agency says it is getting tougher with high-income people.

DLA Piper Nabs Four Tax Litigators From Dorsey & Whitney

Interesting item on this morning's law.com:  DLA Piper Attracts Attorneys for Tax Team:

DLA Piper Rudnick Gray Cary has pulled in four attorneys from a Dorsey & Whitney U.K. group that handles contentious tax issues. Simon Airey, Waseem Khokhar, Michael Anderson, and Aaron Stephens will join DLA Piper's 20-lawyer Tax Investigations and Disputes team in its London office in January 2006. The DLA Piper group is headed up by partner Jonathan Pickworth.

For more details, see the DLA Piper press release.

Should Law Review Publish Article by Adulterous Professor?

Following up on Tuesday's post about whether the Yale Law Journal should withdraw its offer to publish an article because of racist statements made by the author while a law student:  Eugene Volokh considers whether a law review should publish an article by a professor who has committed adultery with a student.  I agree with Eugene's conclusion:

Bad behavior? You bet. Does it reveal a character defect? Sure....But this has zilch to do with the important question, which is: Does the law review article advance our understanding of law? They're not giving the author a decency award, they're publishing an article for the benefit of readers and of the profession. The same goes with other forms of misconduct, whether or not race is involved.

Mastromarco on Resuscitating the Granddaddy of Corporate Welfare

Dan R. Mastromarco (Argus Group, Arlington, VA) has published Resuscitating the Granddaddy of Corporate Welfare, 40 Tax Notes Int'l 1071 (Dec. 19, 2005) & 109 Tax Notes 1453 (Dec. 12, 2005), also available on the Tax Analysts web site as Doc 2005-23963, 2005 WTD 244-8, 2005 TNT 238-23.  Here is the Conclusion:

The territories of the United States face a daunting economic challenge at the advent of the 21st century. Even Puerto Rico, the shining star of the Caribbean, has a large share of the population below the federal poverty line (44%) and persistently high unemployment (11%). The manufacturing base created in the 1950s is eroding under the pressure of NAFTA and other trade agreements, as the territories' wage advantage in unskilled labor disappears.

What that means is that the engines of growth must be overhauled and reignited, and those engines must be allowed to operate at peak performance, unencumbered by ill-conceived and failed federal tax policies. Congress should heed its own advice. Let the GAO do its work before opening up this foul-smelling Pandora's box. Perhaps the best argument against extension of section 936 is the argument some chose to use for it. In a letter to Congress, Interior Secretary Gale Norton said she "strongly urged that Congress [extend section 936 for the two canneries] because of the American Samoa's dependence on this one industry." Sustainable growth benefiting the territories must, in the long run, depend on the success of local entrepreneurs and not the whims of federal tax largess.

New Tax Blog: Don't Mess With Taxes

Welcome to the Tax Blogosphere: Kay Bell's Don't Mess With Taxes:

Sure you hate 'em, but you're stuck with 'em (that, or you're stuck in a federal jail cell). We can make your tax chores less, well taxing. Find tax news, tips, commentary and humor on Don't Mess With Taxes, courtesy of professional tax journalist Kay Bell.

IRS Names Lerner Director ofExempt Organizations Division

The IRS yesterday named (IR-2005-148) Lois G. Lerner director of the Exempt Organizations Division:

Before this appointment, Lerner had been the director of the Exempt Organizations Rulings & Agreements Division, where she was responsible for the EO determinations letter program, public guidance and technical assistance for IRS agents conducting examinations of tax-exempt organizations. Lerner came to the IRS in 2001 from the Federal Election Commission, where she was Associate General Counsel for Enforcement and Acting General Counsel. She replaces Martha Sullivan, who will retire from the IRS at the end of December.

Christmas Gifts for that Special Tax Person

[click on image to enlarge]

Check out this sticker for sale on eBay:

Death, Taxes, and Prozack   

Senate Floor Debate and Colloquy on AMT

A Capitol Hill source passed along last night's AMT debate on the Senate floor among Senators Baucus, Hutchinson, and Kyl, along with a colloquy between Senators Baucus and Grassley.   

   

Tax Court: Parents Cannot Deduct Payments to Their Children's Religious Schools, Despite Scientology Precedent

The Tax Court ruled yesterday in Sklar v. Commissioner, 125 T.C. No. 14 (12/21/05), that a couple's tuition and fee payments to their children's Jewish day schools are not charitable contributions because they received a substantial benefit from their payments and lacked charitable intent.

For prior opinions in the case, see:

• Sklar v. Commissioner, T.C. Memo. 2000-118
• Sklar v. Commissioner, 282 F.3d 610 (9th Cir. 2002)

Joe Kristan observes:

The 1993 IRS settlement with the Church of Scientology came into play in the Tax Court today. Michael Sklar, a Los Angeles CPA, attempted to deduct a portion of tuition paid to send his children to a Jewish day school. He reasoned that if the Scientologists can deduct their "auditing" and "training" fees as charitable contributions, it's only fair to let him similarly deduct the cost of a religious education for his children. Fair or not, the Tax Court didn't agree. The Tax Court sidestepped the equal protection issue, falling back on established court rulings that religious eduction is not deductible as a charitable deduction.

For prior TaxProf Blog coverage, see here and here.  See Howard Bashman's post on the case here.

WSJ on Tax-Free Gross-Ups for Corporate Execs

Interesting front page story in today's Wall Street Journal:  Latest Twist in Corporate Pay: Tax-Free Income for Executives; Companies Reimburse Bosses For Levies on Perks, Stock; Scant Details in Filings, by Mark Maremont:

Like most Americans, rank-and-file employees of Home Depot Inc. must reach into their own pockets to pay taxes. But not Robert Nardelli, the home-improvement retailer's chief executive. Under his employment contract, Home Depot picks up a big chunk of his federal and state income taxes. Specifically, the company is obliged to reimburse its CEO for taxes due on a slew of perks, including a high-end luxury car, his family's travel on Home Depot jets and forgiveness of a $10 million loan. Last year, these payments amounted to at least $3.3 million, topping Mr. Nardelli's $2 million base salary.

Amid soaring CEO compensation, a number of companies are paying extra sums to cover executives' personal tax bills. Many companies are paying taxes due on core elements of executive pay, such as stock grants, signing bonuses and severance packages. Others are reimbursing taxes on corporate perquisites, which are treated as income by the IRS. They run the gamut from personal travel aboard corporate jets to country-club memberships and shopping excursions....

Details of the little-known payments, called "tax gross-ups," are often buried in impenetrable footnotes or obscure filings....

According to a study done by compensation-research firm Equilar Inc., 52% of companies disclosed they paid gross-ups to one or more top executives last year, up from 38% in 2000....

The SEC is conducting a broad crackdown on hidden compensation of all types, although it hasn't yet focused on gross-ups. The agency worries that investors may not realize just how much senior managers are paid beyond their base salaries....

In an effort to shield executives from any tax bite on their pay, gross-ups can quickly spiral into huge sums. When a company reimburses executives for their tax payments, that creates new taxable compensation. The company then has to cover taxes on that new amount, which creates yet more taxable pay, and so on. The spiral ends when the ever-decreasing amount of new income reaches zero, or close to it. The bottom line: Grossing up an executive for taxes on $1 million can easily cost an additional $700,000 to $900,000. In some circumstances, gross-up reimbursements can be more than double the covered pay.

 

 

 

 

 

 

 

 

 

 

Tax gross-ups have proliferated for one major reason, many compensation experts say: They allow companies to quietly pay more to top managers at a time when executive compensation is increasingly controversial. The current rules don't require companies to disclose tax reimbursements separately in pay tables given to shareholders. Instead, gross-ups tend to get lumped into a category called "other annual compensation" in companies' proxy statements. The details are then relegated to densely worded footnotes. Even there, some companies don't disclose the exact amounts of gross-up payments.

2d Circuit Holds Tax Court Is Real "Court," Not IRS Lap Dog

The Second Circuit held yesterday that the Tax Court is a "court" for purposes of the Freedom of Information Act.  The taxpayer had argued that the Tax Court defers to the IRS so much that it should be considered an extension of the IRS, rather than a court.  The district court in Megibow v. Clerk, United States Tax Court, 2004 U.S. Dist. LEXIS 17698 (S.D.N.Y. 2004), had rejected this argument:

Finally, contrary to an argument at least implied in Megibow's brief, whether the Tax Court is a court or an agency for purposes of FOIA is not a question of fact that must await the receipt of evidence establishing "how the Tax Court behaves." Nor is the Court's conclusion dependent on whether it agrees with Megibow's contention that the Tax Court defers unreasonably to positions taken by the Internal Revenue Service ("IRS"). The status of the Tax Court is a question of law that depends on statutory interpretation. Even were Megibow correct that the Tax Court is so biased that it operates in practice as a de facto extension of the IRS, that would suggest only that the Tax Court is a bad court. But bias, or even corruption, does not transform an adjudicative body into an executive or administrative agency for FOIA purposes. The status of a governmental body under FOIA turns on its nature, structure and functions, not on whether Megibow -- or, for that matter, this Court -- thinks it is doing a good job.

N.10:  Needless to say, the Court does not express or intend to imply any view on Megibow's criticisms of the Tax Court. It simply notes that those criticisms, meritorious or not, do not bear on the issue before the Court.

The Second Circuit yesterday affirmed in Megibow v. Clerk, United States Tax Court, No. 04-6204-cv (2d Cir. Dec. 21, 2005):

This appeal presents the issue of whether the United States Tax Court (“Tax Court”), established by the Tax Reform Act of 1969, 26 U.S.C. § 7441, is subject to the Freedom of Information Act (“FOIA”), 5 U.S.C. § 552 — or whether it qualifies as a court of the United States, and is therefore expressly outside the ambit of FOIA. See 5 U.S.C. § 551(1)(B) (excluding from FOIA “the courts of the United States”). The question is one of first instance, and heretofore has not been addressed by us. The district court below (Lynch, J.), in a thorough and well-reasoned opinion concluded that the Tax Court is, in fact, a court for the purposes of FOIA. Accordingly, it held that FOIA could not be applied to the Tax Court. We affirm for the reasons given by the district court.

In a footnote, the Second Circuit stated:

Among the federal courts, only the District Court of Montana has previously considered the issue. It concluded, as we do, that the Tax Court is not subject to FOIA, and the Ninth Circuit affirmed the decision in an unpublished summary order. See Ostheimer v. Chumbley, 498 F. Supp. 890, 892 (D. Mont. 1980), aff’d, 746 F.2d 1487 (9th Cir. 1984).

Hat Tip: Howard Bashman, who noted:

U.S. Court of Appeals for the Second Circuit holds that U.S. Tax Court is a court: Is there no end to judicial activism in this country? Next thing you know, some U.S. Court of Appeals will hold that the U.S. Tax Court has something to do with the adjudication of tax-related disputes.

The Price of Blogging

Interesting post by Steve Bainbridge on one of the downsides of blogging:

I just discovered one cost of blogging - I lost out on a potential expert witness designation because I had written something negative about the prospective client here on the blog. And, no, it wasn't in one of my political rants - it was a core corporate governance post that went directly to my academic interests. Ouch.

Gordon Smith has more here.

Buchanan on Social Security, Generational Justice, and Long-Term Deficits

Neil H. Buchanan (Rutgers-Newark) has published Social Security, Generational Justice, and Long-Term Deficits, 58 Tax L. Rev. 275 (2005).  Here is the abstract:

This paper assesses current methods for evaluating the long-term viability and desirability of government activities, especially Social Security and other big-ticket budget items. I reach four conclusions: (1) There are several simple ways to improve the current debate about fiscal policy by adjusting our crude deficit measures, improvements which ought not to be controversial, (2) Separately measuring Social Security’s long-term balance is inappropriate and misleading, (3) The methods available to measure very longterm government financing (Fiscal Gaps and their cousins, Generational Accounts) are of very limited value in setting public policy today, principally because there is no reliable baseline of the government’s likely future expenditures and receipts, and therefore (4) The government’s current annual and 10-year deficit projections, while highly imperfect, are nonetheless the best measure available for assessing fiscal policy, especially compared with Fiscal Gaps and Generational Accounts.

Boynton, DeFilippes & Legel on Prelude to Schedule M-3: Schedule M-1 Corporate Book-Tax Difference Data 1990-2003

Charles Boynton (Surrey Senior Research Fellow, Office of Tax Analysis, Treasury Department), Portia DeFilippes (Financial Economist, Economic Modeling and Computer Application Division, Office of Tax Analysis, Treasury Department) & Ellen Legel (Senior Staff Economist, Corporation Tax Branch, Statistics of Income Division, IRS) have published Prelude to Schedule M-3:  Schedule M-1 Corporate Book-Tax Difference Data 1990-2003, 109 Tax Notes 1579 (Dec. 19, 2005), also available on the Tax Analysts web site as Doc 2005-23937, 2005 TNT 243-30.  Here is the Conclusion:

For most large corporations, the new Schedule M-3 book-tax reconciliation replaces the four-decade-old Schedule M-1 effective December 2004. The goals of this article are: (1) to present Schedule M-1 data and other selected tax return data for the immediately preceding 14-year period, 1990-2003; and (2) to discuss tax policy data interpretation issues related to U.S. ICDs improperly included on corporate tax returns by some large taxpayers.

• The method of calculating book-tax differences in general use since Talisman (2000) inflates the reported book-tax gap for the 1990s for those corporations requiring the ICD adjustment that included the matching ICD amount in Schedule M-1, line 1.
• On the other hand, corporations that included the matching ICD amount within the body of Schedule M-1, say on line 4, minimized the total book-tax difference reported on Schedule M-1.
• The authors are aware that some large taxpayers in fact used Schedule M-1, line 1 and some used line 4 for the matching amount to balance the ICD amount improperly included on Form 1120, page 1.
• In light of the ICD interpretation uncertainties, the authors recommend the Talisman (2000) approach to measuring the book-tax gap of the 1990s for purposes of assessing compliance risk.
• Those issues will likely remain unresolved until Schedule M-3 data replace Schedule M-1 data.

New Tax Blog: Tax Mama

Welcome to the tax blogosphere:  Eva Rosenberg's TaxMama.com, whose motto is "Tax Information With A Mother's Touch."  The site contains a wealth of tax information, including:

• Weekly newletter
• "Toolbox" with a variety of tax resources
• Q&A forum
• Special section for tax professionals
• FAQs

Christmas Gifts for that Special Tax Person

[click on image to enlarge]

For sale on eBay:  A print of Norman Rockwell's Taxes 

Harvard Business School to Allow M.B.A. Students to Disclose Class Rank to Employers

Interesting media reports about Harvard Business School's decision to allow M.B.A. students to disclose their class rank to potential employers:

Wall Street Journal, Grade Conflation (12/21):

Until 1998, students could discuss their grades and potential employers could ask for them. Students were graded, as they are now, on a forced curve with the top 15% to 20% getting a "1," the middle 70% a "2," the bottom 10% a "3." ... On a student vote, it was decided that grades could no longer be disclosed and companies who recruited at HBS could not ask for them. Only the Baker Scholars, the top 5% of the class, and the next 15% who received honors were permitted to advertise their achievement.

The prohibition of grade disclosure struck some as a crazy inconsistency in an institution designed to breed ultra-competitors. Battle-hardened alumni harrumphed about the alma mater going soft.... Professors also now seemed to consider grading a meaningless chore and said as much.

So a few months ago, the faculty decided grade disclosure was owed another chance...The campus promptly exploded.... In a final vote, 87% of students opposed grade disclosure, 6% were for it and 7% declared themselves indifferent. But when was leadership ever about listening to a bunch of 27-year-old grad students? The grassroots were ignored and the new rule was imposed by executive order, leaving the campus simmering with indignation both righteous and profane.

Business Week, Harvard: No More Grade Secrets; Against Much Student Opposition, B-school's New Policy Will Allow MBAs to Disclose Grades to Recruiters (12/16):

The administration says it's giving students more freedom. "Fundamentally, I believe it is inappropriate for HBS to dictate to students what they can and cannot say about their grades during the recruiting process," wrote Jay Light, Harvard Business School acting dean, in a memo to students on Dec. 15. "In making this decision, I have listened carefully to concerns voiced by current students, and sought the views of faculty, staff, former students, recruiters, and other key constituencies who also care deeply about this issue and its effect upon HBS."

HBS students are graded on a scale of one to three. They receive a one for being in the top 15% to 20% of the class, a two for being in the middle 70%, and a three for being in the bottom 10%. Fear of falling into that lower 10% is one reason why some students suggest the rule change could discourage people from signing up for classes containing difficult subject matter....

Its new policy now will more closely mirror that of some of its peer schools, including the University of Chicago Graduate School of Business and the Stanford Graduate School of Business, which give students the ultimate choice about whether to reveal their grades to recruiters.

Brannan on Marks & Spencer: Solomon on Corporate Taxes

Another interesting op-ed on the Marks & Spencer case [previously blogged here and here]: in today's Wall Street Journal, Solomon on Corporate Taxes, by Guy Brannan (head of Linklaters' tax practice in London):

It is unusual for a court decision on a tax issue to feature on television news and prompt front-page headlines in the press. However, last week's European Court of Justice (ECJ) ruling concerning an appeal by U.K. retailer Marks & Spencer was no ordinary case -- billions of euros and the sovereignty of tax authorities were at stake. Even after reading the decision many tax experts were left wondering which side had won. In effect, both sides can claim a partial victory, but the story seems set to run and run.

New Law Toughens Medicaid Eligibility

The deficit reduction bill passed 51-50 by the Senate today (with Vice-President Dick Cheney casting the deciding) toughens the rules on the impact of asset transfers on Medicaid eligibility.  Today's Wall Street Journal catalogs these changes:

[The new law] make[s] it harder for some people who do have assets to get Medicaid to pay their nursing-home bills. The changes:

• Force people who transfer assets to wait awhile before Medicaid will cover their nursing-home care.

• Bar a person with equity in a home of more than $500,000 from Medicaid coverage. States can raise the limit to $750,000. Currently, in most cases, a person can own a home of any value and still have their nursing-home bills covered.

• Require states to look for inappropriate asset transfers during the five years before a Medicaid application, instead of the current three years.

• Classify certain annuities as assets that trigger the waiting period; annuities sometimes are used to turn large assets into small, Medicaid-friendly payouts.

"Poker Joe" Trumps Tax Man

Interesting story out of Australia:  Poker Joe Trumps Tax Office:

The cards fell poker champion Joe Hachem's way a second time yesterday after the Australian Taxation Office ruled he would not have to pay tax on his $10 million win. The ATO decided the Melbourne man was still officially working as a mortgage broker when he won the grand prize in July's No Limit Texas Hold 'Em World Championship in Las Vegas. This decision means his bonanza was classified as income derived from a hobby, not from business, saving the poker king from paying about $3.5 million in tax. The American tax office has already taken 30%, or $3 million, of the 39-year-old's winnings, and if the Australian tax man took his slice it would have left him with $3.5 million.

Mr Hachem's tax counsel, Peter Donovan, said yesterday it was unclear if the poker ace would have to pay tax on future winnings. "The distinction between the conduct of a business and the pursuit of a hobby is often a difficult distinction to draw," he said.

Heritage Foundation Grades Tax Bills: "B" for House, "D" for Senate

Daniel J. Mitchell (McKenna Senior Research Fellow, Thomas A. Roe Institute for Economic Policy Studies, Heritage Foundation.) has published Grading Congressional Tax Bills: “B” for the House, “D” for the Senate on the Heritage Foundation web site:

[Using an] economic growth yardstick, the House legislation is much better than the Senate legislation. In schoolhouse parlance, the House bill deserves a “B” and the Senate bill deserves a “D.”

Social Science Professors Lean to the Left

Inside Higher Ed reports this morning on yet another study showing that the academy leans to the left -- Narrow-Tent Democrats and Fringe Others: The Policy Views of Social Science Professors, by Daniel B. Klein (Department of Economics, George Mason University) & Charlotta Stern (Institute for Social Research, Stockholm University):

The latest study is based on surveys conducted in 2003 of members of various disciplinary associations. On the question of political affiliation, the survey found the following breakdown of Democrats to Republicans:

• Anthropologists and sociologists — 21.1:1
• Political and legal philosophers — 9.1:1
• Historians — 8.5:1
• Political scientists — 5.6:1
• Economists — 2.9:1

[L]eaders in some of the disciplines studied say that the study overstates and oversimplifies the role of party affiliation in academic life...

Troy Duster, past president of the American Sociological Association, said he was not surprised that Democrats far outnumber Republicans in his discipline. But he said that the suggestion that “some kind of conspiracy” was at work simply was not true....Sociologists and anthropologists, by their training, “look at issues of social stratification and social inequality” and do so from the perspective that inequality is not a good thing. People who spend their professional lives focused on inequalities are probably likely to have “a more progressive orientation,” he said, than people whose professional lives focus on other issues.

Here is the abstract of the paper:

This paper provides copious results from a 2003 survey of academics. We analyze the responses of 1208 academics from six scholarly associations (in anthropology, economics, history, legal and political philosophy, political science, and sociology) with regard to their views on 18 policy issues. The issues include economic regulations, personal-choice restrictions, and military action abroad. We find that the academics overwhelmingly vote Democratic and that the Democratic dominance has increased significantly since 1970. A multivariate analysis shows strongly that Republican scholars are more likely to land outside of academia. On the 18 policy questions, the Democratic-voter responses have much less variation than do the Republicans. The left has a narrow tent. The Democratic and Republican policy views of academics are somewhat in line with the ideal types, except that across the board both groups are simply more statist than the ideal types might suggest. Regarding disciplinary consensus, we find that the discipline with least consensus is economics. We do a cluster analysis, and the mathematical technique sorts the respondents into groups that nicely correspond to familiar ideological categories: establishment left, progressive, conservative, and libertarian. The conservative group and the libertarian group are equal in size (35 individuals, each), suggesting that academics who depart from the leftist ranks are as likely to be libertarian as conservative. We also find that conservatives are closer to the establishment left than they are to the libertarians.

Government Seeks Rehearing in Ballard and Lisle

Sheryl Stratton reports this morning that Government Seeks Appellate Court Rehearing in Ballard and Lisle Cases, also available on the Tax Analysts web site as Doc 2005-25609, 2005 TNT 244-1:

Charging that the appeals courts' decisions in the Ballard and Lisle cases conflict with the Supreme Court's decision in the Ballard/Kanter case, the Justice Department is seeking rehearings in the Eleventh and Fifth circuits.

The circuits' orders -- reinstating Tax Court Special Trial Judge Irvin Couvillion's original report in the fraud trial of Burt Kanter, Claude Ballard, and Robert Lisle, forbidding a new Tax Court judge from recommitting the cases to Judge Couvillion, and directing review of his original report under a "manifestly unreasonable" standard -- are inconsistent with the Supreme Court's opinion in Ballard v. Commissioner, 125 S.Ct. 1270 (2005), according to the government's petitions for rehearing. (For the petition in Ballard, see Doc 2005-25589 [PDF]; for the petition in Lisle, see Doc 2005-25590 [PDF].)

In November 2005 the Eleventh Circuit in Ballard was joined by the Fifth Circuit in Lisle in per curiam opinions that ordered the Tax Court to strike the collaborative opinion published by the Tax Court in Investment Research Associates Ltd. et al. v. Commissioner, T.C. Memo. 1999-407, regarding the cases pending in the Tax Court. The two courts directed the Tax Court to reinstate the original special trial judge's report (which found no fraud), to refer the cases to a new judge who had no involvement in the collaborative report, and for the new judge to "give 'due regard' to the credibility determinations of Judge Couvillion, presuming that his fact findings are correct unless manifestly unreasonable." (For the Eleventh Circuit's opinion, see Doc 2005-22258 [PDF], 2005 TNT 212-16 . For the Fifth Circuit's opinion, see Doc 2005- 23858 [PDF], 2005 TNT 226-5 .)

The appeals courts' opinions appear to forbid a new Tax Court judge assigned to the cases from recommitting them to Judge Couvillion under Tax Court Rule 183, even if the reviewing judge were to determine recommittal was warranted, the government points out in its December 15 petitions. "Foreclosing this avenue," the motions state, "would preclude the Tax Court from fully following its own rules." It is difficult to conceive of a process less likely to result in accurate fact-finding than to deny the Tax Court all access to the only judge who was physically present when the evidence was taken, the motions say. Barring the Tax Court from giving Judge Couvillion any opportunity to reconsider his report is not only inconsistent with the Supreme Court's interpretation of Rule 183, but "stands Rule 183 on its head," the motions add.

Furthermore, the circuit courts' orders heighten Rule 183 standards of deference to a manifestly unreasonable standard of review, instead of the Supreme Court's enunciated "respectful attention" standard, the government argues. The petitions assert that a regular Tax Court judge's decisional authority would be abdicated if the judge had to apply the heightened standard of review to a recommendation by a special trial judge that the regular judge did not believe.

The government asks the circuit courts to modify their opinions to make clear that the new judge who reviews the special trial judge's original report may exercise any option permitted by Rule 183, including recommittal of the case to the special trial judge, and to incorporate the Supreme Court's respectful attention standard for reviewing special trial judge recommendations.

New Tax Blog: Tick Marks

Welcome to the tax blogosphere:  Dan Meyer's Tick Marks blog.  From the inaugural post:

[T]his blog is intended to concentrate primarily on accounting and related topics (taxation and personal finance to name two). Nevertheless, there will be forays into other topics as well. I teach at Austin Peay State University and am married to the former Pamela Sharp, who is studying to take the Tennessee Bar soon.

Dan's blog has been up and running since May; he recently had kind words to say about TaxProf Blog, naming us the "Seventh Blog of Christmas." (Hat Tip: The ever vigilant Joe Kristan, named the "Fifth Blog of Christmas.")

Christmas Gifts for that Special Tax Person

For Counsel (Products and Gifts for Lawyers) sells an exact reproduction of the original 1913 Form 1040:

Four pages long, including one page of instructions. Impressively framed in classic mahogany with beaded edge and segmented mat of ivory. Brass plate mounted on the mat states: "1913 Inaugural Form 1040." Framed dimensions are 30" by 24". Comes with Plexiglas and all accessories for hanging. 

Briefs in DaimlerChrysler v. Cuno

Thanks to Stephen P. Carney and Ada L. Marginean of Ohio Attorney General Jim Petro's Office, I am delighted to make available the merits and amici briefs in Cuno v. DaimlerChrysler, Inc., 386 F.3d 738 (6th Cir. 2004), cert. granted, Nos. 04-1704 & 04-1724, scheduled for oral argument in the Supreme Court on March 1, 2006.  The case involves the constitutionality of Ohio's investment tax credit (as well as the procedural question of Respondents' standing). 

Merits Briefs:

• DaimlerChrysler
• State of Ohio

Amici Briefs in Support of Daimler Chrysler and the State of Ohio:

• AlphaGenics, Inc., Greater Baltimore Technology Council, MdBio, Inc., Technology Council of Maryland, Upsate Venture Association of New York, Inc., and 20/20 Genesytems, Inc.
• Ashbrook Center for Public Affairs
• City of New York
• Council on State Taxation and National Association of Manufacturers
• Ford and GM
• National Governors Association, National league of Cities, International Municipal Lawyers Association, Council of State Governments, National Association of Counties, National Conference of State Legislators, U.S. Conference of Mayors, Government Finance Officers Association, and International City/County Management Association
• Nissan
• Pacific Legal Foundation
• Tax Executives Institute, Inc.
• Tax Foundation
• The Right Place, Inc. and the City of Grand Rapids, MI
• Thirty-Four States (AL, AZ, AR, CA, CO, CT, DE, GA, HA, ID, IL, IN, IA, KY, ME, MD, MA, MI, MO, NE, NV, NY, ND, OK, OR, PA, SC, SD, TN, TX, UT, VT, WA, WI)
• Washington Legal Foundation
• Wayne County, MI

Amici Briefs Supporting Neither Party:

• DirecTV, Inc. and Echostar Satellite LLC

Prescott in WSJ: "Stop Messing With Federal Tax Rates"

Interesting op-ed in today's Wall Street Journal by Edward C. Prescott (Senior Monetary Adviser at the Federal Reserve Bank of Minneapolis, Professor of Economics at the W.P. Carey School of Business at Arizona State University, and 2004 Nobel Laureate in Economics), "Stop Messing With Federal Tax Rates":

That our current tax system is complicated and burdensome and absorbs unnecessary amounts of our limited resources is well accepted by most everyone, and this issue was a primary concern of the Advisory Panel on Federal Tax Reform that recently released its recommendations. This problem deserves to be seriously addressed, but we could take a big step in the right direction if we just stop messing with federal tax rates. Maybe Congress should take a cue from the Federal Reserve, which learned a long time ago that oversteering with its policy corrections wreaks havoc with market expectations and impedes economic growth. Just as the Federal Reserve has made it clear that it will strive to maintain low inflation, which has allowed businesses and consumers to invest and plan accordingly, Congress should establish good tax rates and walk away. The people will take it from there.

So what are good tax rates? It's useful to begin with consideration of a simple principle: Taxes distort behavior. From this powerful little sentence comes the key insight that should inform our thinking about setting tax rates. Any tax, even the lowest and the fairest, will cause people to consume less or work less. Taxes that are inordinately high only exacerbate this reaction, and the aggregate accumulation of these individual decisions can be devastating to an economy.

Good tax rates, then, need be high enough to generate sufficient revenues, but not so high that they choke off growth and, perversely, decrease tax revenues. This, of course, is the tricky part, and brings us to the task at hand: Should Congress extend the 15% rate on capital gains and dividends? Wrong question. Should Congress make the 15% rate permanent? Yes. (This assumes that a lower rate is politically impossible.) These taxes are particularly cumbersome because they hit a market economy right in its collective heart, which is its entrepreneurial and risk-taking spirit. What makes this country's economy so vibrant is its participants' willingness to take chances, innovate, acquire financing, hire new people and break old molds. Every increase in capital gains taxes and dividends is a direct tax on this vitality.

Avi-Yonah on The Report of the President’s Advisory Panel on Federal Tax Reform: A Critical Assessment and a Proposal

Reuven S. Avi-Yonah (Michigan) has posted The Report of the President’s Advisory Panel on Federal Tax Reform: A Critical Assessment and a Proposal on SSRN.  Here is the abstract:

On November 1, 2005, The President’s Advisory Panel on Federal Tax Reform submitted its report to the Secretary of the Treasury. At 272 pages, this is the most important and wide-ranging plan to reform the U.S. federal tax system since Blueprints for Basic Tax Reform (1977). While prospects for immediate action appear dim, the Report will no doubt be the basis of discussion of federal tax reform for a long time to come.

This paper attempts a preliminary evaluation of the Report. It first tries to situate the Report in the context of the long-lasting debate about whether income or consumption should be the proper tax base, and to explain why neither of the two plans endorsed by the Panel (the Simplified Income Tax (SIT) Plan, and the Growth and Investment Tax (GIT) Plan) completely abandons income taxation. Second, the paper evaluates each of the SIT and GIT Plans and points out some problem areas in each proposal.

Finally, the paper advances an alternative proposal that abandons the political constraint imposed by President Bush (revenue neutrality) and calls for part of both the SIT and GIT Plans to be enacted. Specifically, the paper calls for enactment of the individual part of both Plans, which is identical; for adoption of the taxation of income from savings proposal in the GIT Plan (although not necessarily at the same rate); and for enactment (with minor modifications) of the business tax portion of both Plans.

The result would be that the U.S. would end up with a simplified income tax for individuals (the individual and savings part), a corporate tax (the business part of the SIT Plan), and a VAT (the business part of the GIT Plan). This reform would align U.S. tax policy with the other members of the OECD (all of whom have personal and corporate income taxes and a VAT) and (unlike the Panel proposals and other revenue neutral options) would enable it to meet the long-term budgetary implications of the retirement and health insurance needs of the baby boom generation.

Yale L.J. Refuses to Revoke Acceptance of Article Despite Racist Statements Made by Author While a Student at Harvard

The Yale Law Journal thus far has refused to revoke an offer to publish a symposium article (Control Mechanisms for Quasipublic Executives:  The Intersection of Corporate and Constitutional Law) by Kiwi Alejandro Danao Camara (with Paul Gowder).  Camara is the youngest person to ever graduate from Harvard Law School (in 2004) and is now an Olin Fellow in Law & Economics at Stanford.

Yale is considering revoking the publication offer because of a property outline Camara posted in an on-line outline bank while at Harvard.  The outline warned that it might "contain racially offensive shorthand."  blackprof.com notes:

Here is what he said when referring to Shelley v. Kraemer (a seminal Property case on racially restrictive covenants):

"Nigs buy land with no nig covenant; Q: Enforceable?"

When asked to explain his comment Mr. Camara remarked that it was a "mistake and a miscalculation." Asked if he would use such racial slurs in the future, he commented: "I will make a much more conscious attempt than I have made not to do so. I can't guarantee it."

The outline caused quite a controversy at Harvard, memorialized in this book, reported in the Harvard Law Record (here, here, here, here, and here), and picked up by avarious media outlets (e.g., here).

For further discussion of the Yale L.J. flap, see:

• The YLJ Debate
• Death in the Afternoon
• Letters of Marque
• PrawfsBlawg
• Shangri Law I
• Shangri Law II
• Shangri Law III
• Volokh Conspiracy I
• Volokh Conspiracy II

(Hat Tip: Howard Bashman.)

Tax Gap at Record High 14.4%

The Bureau of Economic Analysis has released a new estimate of the tax gap -- the gap between personal income and AGI -- in Comparison of BEA Estimates of Personal Income and IRS Estimates of Adjusted Gross Income.  The new report pegs the tax gap at 14.4%, the highest figure in the 46 years the data has been computed, and up from 10.7% in 2000.  For historic tax gap amounts, see here. (Thanks to Bruce Bartlett for the tip.)

Fleming & Peroni on Exploring the Contours of a Proposed U.S. Exemption (Territorial) Tax System

J. Clifton Fleming, Jr. (BYU) & Robert J. Peroni (Texas) have published Exploring the Contours of a Proposed U.S. Exemption (Treritorial) Tax System, 109 Tax Notes 1557 (Dec. 19, 2005), also available on the Tax Analysts web site as Doc 2005-24240, 2005 TNT 243-29.  Here is the abstract:

The President's Advisory Panel on Federal Tax Reform and the Joint Committee on Taxation staff have recently advanced similar proposals for a U.S. exemption system regarding particular foreign- source income of particular U.S. corporate taxpayers. Both proposals are well meaning but ultimately flawed attempts to simplify the U.S. international tax rules. The proposals, if enacted, would do little to provide simplification for most taxpayers and would intensify complexities in existing law while adding new complexities of their own. Moreover, the "new" ownership neutrality defense of those exemption plans is largely capital import neutrality under a new label but with all the old defects. It is not surprising that the proposed exemption systems would exacerbate the economic distortions caused by the current U.S. tax rules and that the reform panel's exemption proposal would largely continue the economic bias resulting from the deferral privilege. Further, if fundamental international tax reform is to be accomplished, the Bush administration and Congress should consider replacing the present, largely ineffective, antideferral rules with a passthrough system for foreign corporations owned by U.S. persons that ends deferral completely for those shareholders. That approach would simplify the U.S. international tax system and substantially improve its economic efficiency and fairness.

IRS to Raise User Fees in 2006

The IRS announced yesterday (IR-2005-144) that it has raised various user fees for 2006:

February 1, 2006 User Fee Increases:

• The fee for IRS Chief Counsel private letter rulings will increase from $7,000 to $10,000. Under the new fee schedule, taxpayers earning less than $250,000 can request a private letter ruling for a reduced fee of $625 while a fee of $2,500 will apply to requests from taxpayers earning from $250,000 to $1 million.
• The fee for requests for changes in accounting methods for businesses will increase from the previous $1,500 to $2,500.
• For corporate taxpayers, the cost of a pre-filing agreement will increase from the previous three-tiered structure, which was capped at $10,000, to a new flat fee of $50,000. Also, Advance Pricing Agreements, which previously cost from $5,000 to $25,000, will now cost from $22,500 to $50,000.
• For employee plans, fees for opinion letters on prototype IRAs, SEPs, SIMPLE IRAs and Roth IRAs, which were previously $125 to $2,570, will now range from $200 to $4,500. Fees for exempt organizations rulings, which previously cost $155 to $2,570, will now range from $275 to $8,700.

July 1, 2006 User Fee Increases:

• Other user fees in the exempt organizations and employee plans area will increase July 1. For example, user fees for exempt organization applications and requests for group exemption letters, which currently range from $150 to $500, will increase to $300 to $900.

For more information, see:

• TEGE user fees
• Other IRS user fees

Christmas Gifts for that Special Tax Person

[click on image to enlarge]

Check out this tee-shirt for sale on eBay:

IRS:  We've got what it takes to take what you've got

CBO Releases The Long-Term Budget Outlook

The Congressional Budget Office last week released The Long-Term Budget Outlook. Here is the Executive Summary:

As health care costs continue to grow faster than the economy and the baby-boom generation nears eligibility for Social Security and Medicare, the United States faces inevitable decisions about the fundamentals of its spending policies and its means of financing those policies. This Congressional Budget Office report looks at a range of possible paths for federal spending and revenues through 2050 and combines them into various hypothetical scenarios. Analysis of the scenarios suggests the following conclusions:

• Driven by rising health care costs and an aging population, federal spending for Medicare, Medicaid, and Social Security will claim a sharply increasing share of the nation’s economic output over the coming decades.
• Even if taxation reached levels that were unprecedented in the United States, current spending policies could become financially unsustainable. An evergrowing burden of federal debt held by the public would have a corrosive and potentially contractionary effect on the economy.
• As the U.S. tax system is now configured, federal revenues will grow faster than the overall economy. Under current law, taxpayers will face higher rates, with detrimental consequences for work, saving, and economic growth.
• Fiscal policy could be financially sustainable if the growth of health care costs slowed significantly from historical rates. But even in that case, tax revenues would probably need to be higher than they have been in the past, unless the growth of other spending was curbed.
• If taxation is restricted to the levels that prevailed in the past, the growth of spending on programs for the elderly will have to be reduced substantially. Limiting the growth of outlays for defense, education, transportation, and other discretionary programs would not be enough to ensure fiscal sustainability.
• Likewise, economic growth alone is unlikely to bring the nation’s long-term fiscal position into balance. Moreover, issuing ever-larger amounts of debt or dramatically raising tax rates could significantly reduce economic growth.

Kovacs on Marks & Spencer Furthers Tax Harmonization

Interesting op-ed in today's Wall Street Journal on the Marks & Spencer case [blogged here]: A Case for Tax Harmonization, by Laszlo Kovacs (Commissioner for Taxation and Customs Union of the European Union):

My main priority in the direct tax field, therefore, is the creation of a common consolidated corporate taxation base in the EU. If companies were allowed to apply a single EU-wide set of rules for company taxation purposes, they would not encounter most of the tax obstacles that they currently face when they do business in more than one member state. A single set of rules would lead to a substantial reduction in compliance costs.

A very good example of the sort of obstacle we hope to remove is the issue of crossborder tax relief for losses. We believe that it does not make sense to tax an enterprise's profits in one country but at the same time refuse to allow offsetting losses made in another member state. Last week's ECJ decision in the Marks & Spencer case illustrates this perfectly. The court recognized that there is a problem with the current U.K. practice with respect to EU law, as it prohibits offsetting losses made by subsidiaries in other EU countries from the parent company's group profit in Britain. Member states can apply such a prohibition only where subsidiaries can offset losses in the country where they are established. The European Commission welcomes the decision.

The Little Tax Drummer Boy

Jim Maule (Villanova) resurrects a story we ran in March (Paying the Tax Drummer) about the practice of tax authorities in India sending groups of drummers to play outside the homes of tax delinquents until they pay up what they owe.  Jim offers a tax version of The Little Drummer Boy.  Here's the opening:

Come they told me
Pa rum pum pum pum
A new tax cheat to see
Pa rum pum pum pum

Christmas Gifts for that Special Tax Person

Tax Stories (Foundation Press, 2003) (ISBN # 1-58778-403-3), by Paul L. Caron (Cincinnati):

• Introduction: Tax Archaeology, by Paul L. Caron (Cincinnati):
• Ch. 1: The Story of Glenshaw Glass: Toward a Modern Concept of Gross Income, by Joseph Dodge (Florida State)
• Ch. 2: The Story of Eisner v. Macomber: The Continuing Role of “Realization” in Tax Law and Policy, by Marjorie E. Kornhauser (Tulane)
• Ch. 3: The Story of Kirby Lumber: The Many Faces of Discharge of Indebtedness Income, by Deborah H. Schenk (NYU)
• Ch. 4: The Story of Davis: Transfers of Property Pursuant to Divorce, by Karen B. Brown (George Washington)
• Ch. 5: The Story of Welch v. Helvering: The Use (and Misuse) of the 'Ordinary and Necessary' Test for the Deductibility of Business Expenses, by Joel S. Newman (Wake Forest)
• Ch. 6: The Story of INDOPCO: What Went Wrong in the Capitalization v. Deduction Debate?, by Joseph Bankman (Stanford)
• Ch. 7: The Story of Crane: How a Widow’s Misfortune Led to Tax Shelters, by George K. Yin
• Ch. 8: The Story of Schlude: The Origins of the Tax/Financial Accounting GA(A)P, by Russell K. Osgood (Grinnell College)
• Ch. 9: The Story of Earl: How Echoes (and Metaphors) from the Past Continue to Shape the Assignment of Income Doctrine, by Patricia A. Cain (Iowa)
• Ch. 10: The Story of Knetsch: Judicial Doctrines Combating Tax Avoidance, by Daniel N. Shaviro (NYU)

• Business Tax Stories (Foundation Press, 2005) (ISBN # 1-58778-729-6), by Steven A. Bank (UCLA) & Kirk J. Stark (UCLA):
• • Introduction:  An Evolutionary Perspective on the History of U.S. Business Taxation, by Steven A. Bank (UCLA) & Kirk J. Stark (UCLA)
  • Ch. 1: The Story of the Separate Corporate Income Tax: A Vehicle for Regulating Corporate Managers, by Reuven S. Avi-Yonah (Michigan)
  • Ch. 2: The Story of the Corporate Reorganization Provisions: From "Purely Paper" to Corporate Welfare, by Ajay K. Mehrotra (Indiana-Bloomington)
  • Ch. 3: The Story of Gregory: How are Tax Avoidance Cases Decided?, by Assaf Likhovski (Tel Aviv)
  • Ch. 4: The Story of General Utilities and its Repeal: Much Ado about Nothing?, by Herwig J. Schlunk (Vanderbilt)
  • Ch. 5: The Story of Double Taxation: A Clash over the Control of Corporate Earnings, by Steven A. Bank (UCLA)
  • Ch. 6: The Story of Hendler: From Pyrrhic Victory to Modern Section 357, by Karen C. Burke (San Diego)
  • Ch. 7: The Story of Subchapter K: Mark H. Johnson's Quest, by Mark P. Gergen (Texas)
  • Ch. 8: The Story of Tufts: The "Logic" of Taxing Nonrecourse Loan Transactions, by Laura Cunningham (Cardozo) & Noel Cunningham (NYU)
  • Ch. 9: The Story of Seagram: The Step Transaction Doctrine on the Rocks, by Lawrence Zelenak (Duke)
  • Ch. 10: The Story of the Limited Liability Company: Combining the Best Features of a Flawed Business Tax Structure, by Susan Pace Hamill (Alabama)