Rauch on In Defense of the AMT

Interesting article in the National Journal:  A Bad Tax With Good Timing, by Jonathan Rauch:

In 1969, Treasury Secretary Joseph W. Barr announced that 155 taxpayers with incomes over $200,000 had paid no income tax. "The news created a political firestorm," write Leonard E. Burman, William G. Gale, and Jeffrey Rohaly of the Tax Policy Center, a joint project of the Brookings Institution and the Urban Institute. "In 1969, members of Congress received more constituent letters about the 155 taxpayers than about the Vietnam War." Thus was born the alternative minimum tax, more widely known as the AMT -- the single most reviled initialism in the tax lexicon, which is saying something.

Well, any policy so uniformly reviled in Washington can't be all bad. The AMT is a dog, no doubt about that. But every dog has its day.

Seen in a fiscal light, the AMT looks less like a train wreck than a safety net. It produces automatic tax increases as inflation extends its reach, and does so at precisely the time when tax increases will be most needed. If one believed in providence, one might say it had pre-positioned the AMT to kick in at America's hour of maximum fiscal need and minimum political will.

The upshot is that the AMT may spur a broad tax reform; it may lay the groundwork for a broad reform; or it may simply turn out to be a politically tolerable tax increase at a time when the country needs all the fiscal help it can get. In a first-choice world, the AMT is a horror. But in Tax Land, which is a third-choice world at best, the AMT looks heaven-sent.

Schenk on The Circular 230 Amendments: Time to Throw Them Out and Start Over

Deborah H. Schenk (NYU) has published The Circular 230 Amendments:  Time to Throw Them Out and Start Over, 110 Tax Notes 1311 (Mar. 20, 2006), also available on the Tax Analysts web site as Doc 2006-4387, 2006 TNT 54-24.  Here is the abstract:

Treasury's amendments to Circular 230 have provoked a hue and cry from tax advisers. Some of the objections are overblown and trivial, but many are not. It's time for Treasury to admit that the amendments are wrongheaded. Treasury apparently has two objectives: to curb tax shelter penalty protection opinions and to protect consumers. The current opt-out approach does a poor job of achieving either objective. The amendments are overbroad, curb legitimate advice, and probably result in worse tax advice than before. An opt-in approach that would permit only very detailed and highly regulated opinions to serve as penalty protection is far preferable, particularly if it is coupled with strong enforcement. All other tax advice, provided it is not misleading or deceitful, should be "regulated" by the market. Treasury does not need to respond to the legitimate complaints by caving in. Rather, it should focus only on penalty protection opinions and enforce the rules with respect to those opinions.

Aprill on Churches, Politics, and the Charitable Contribution Deduction

Ellen P. Aprill (Loyola-L.A.) has posted Churches, Politics, and the Charitable Contribution Deduction, 42 B.C. L. Rev. 843 (2001), on SSRN.  Here is the abstract:

Churches often bear the burden of the Internal Revenue Code's electioneering prohibition without their contributors enjoying the benefit of a tax deduction. Although contributions to religious congregations may be deducted, many, perhaps most of them, are not because many of those who give to churches do not itemize their income tax deductions. In the past two years, Congress has had before it several bills that would permit nonitemizing taxpayers to deduct their charitable contributions. This Article argues that extending the deduction to nonitemizers raises important issues of tax policy that should concern religious organizations. The author contends that religious congregations will benefit from considering some of the difficult questions about the relationship of the charitable contribution deduction to the standard principles of tax policy. If they do, they might support either a deduction only above a floor or a charitable contribution credit rather than a 100% deduction for nonitemizers.

NY Times: Nonprofit Hospitals Face Scrutiny

Interesting article in the New York Times:  Nonprofit Hospitals Face Scrutiny Over Practices, by Robert Pear:

Congressional leaders, concerned that many nonprofit hospitals are not providing enough charity care to justify their tax-exempt status, say they will set standards for the industry if it does not do so itself.

The chairman of the Senate Finance Committee, Charles E. Grassley, Republican of Iowa, who had already been examining nonprofit groups like United Way and the American Red Cross, is broadening his focus to include nonprofit hospitals, with an eye to legislation that would clarify standards for their tax exemptions. Representative Bill Thomas, Republican of California, the chairman of the House Ways and Means Committee, began investigating the financial practices of nonprofit hospitals last year. The commissioner of internal revenue, Mark W. Everson, said tax officials often found little difference between nonprofit and for-profit hospitals "in their operations, their attention to the benefit of the community or their levels of charity care."

More on the Law Prof Blogosphere

We noted last week that Dan Solove at Concurring Opinions has updated his Law Professor Blogger Census and reports that there are now 235 law professor bloggers at 100 law schools; 24.7% of the law professor bloggers are female and 75.3% are male. In our Law Professor Blogs Network, we have 41 law professor bloggers (17.4% of the total); 29.3% of our law professor bloggers are female and 70.7% are male; and 17.1% are persons of color.

Dan Markel notes today on PrawfsBlawg that:

[T]hese stats seem inflated on a couple dimensions. Don't get me wrong: I'm certain they are accurate in that Dan S. has dutifully reported all the information reasonably available to him. But I fear they are misleading in that various people (men and women) who are listed as bloggers are barely blogging, and certain blogs have relatively very few posts, and usually those blogs, and many others on the list, have very few readers.

[W]e should be cautious and not try to overstate the amount of enthusiasm out there for prawf blawging. It's a wonderful thing that more people are writing for audiences beyond law reviews and opeds. And for the most part, I am bullish on prawf blawging's future. But the growth of blogging by law profs is not, I submit, as robust as an uncritical view of the Solove Census suggests.

Dan M. notes that we are going to explore the future of the law prof blogosphere at our conference at Harvard Law School on April 28, 2006:  Bloggership: How Blogs Are Transforming Legal Scholarship.  The conference is free and open to the public.

Dan S. has a detailed reply to Dan M. here; he notes:

I agree with a lot of what Markel writes. In my census, I do not look at the frequency at which a law professor blogs, so ones who post only once in a blue moon are still counted. I adopt this policy because I don't want to create some rule for how frequently one has to post to be deemed an "active" blogger. Nor do I have time to check to see how often folks are blogging. So Markel is right -- my census is limited in that it is basically a head count.

Koenig & Harvey on Utilization of the Saver's Credit: An Analysis of the First Year

Gary Koenig & Robert Harvey (both of Joint Committee on Taxation) have published Utilization of the Saver's Credit: An Analysis of the First Year, 58 Nat'l Tax J. 787 (Dec. 2005).  Here is the abstract:

We examine the utilization of the saver's credit in the first year of availability. The credit is a nonrefundable tax credit for low– and moderate–income taxpayers who make contributions to a retirement plan. For taxpayers who claimed the credit at the maximum credit rate, we find that almost 43 percent had their tax credit limited by their tax liability. Tax liability should become a greater constraint in the future because the income limits are not indexed for inflation. We also find that 34 percent of qualified taxpayers could have claimed $496 million in the saver's credit, but failed to do so. In total, this paper may prove helpful to policy makers in considering the future design of the saver’s credit and researchers in estimating the behavioral response to the credit.

Slemrod on My Beautiful Tax Reform

Joel Slemrod (University of Michigan, Ross School of Business) has posted My Beautiful Tax Reform on the Michigan web site:

No more April 15 to look forward to? Not if Ross School tax expert Joel Slemrod's "beautiful tax reform" is adopted. The policy, named after the idea that artists and writers often embrace simplicity as being beautiful, would mean Americans would not have to file tax returns, but would enjoy a low, basic rate with the usual tax credits built in, thus relieving government of heavy administrative burdens.

Business and capital income would be systematically subject to progressive taxation by eliminating the benefit of graduated corporation income tax rates, offering a credit for corporation taxes paid by tax-paying public corporations, and cleaning the corporate tax base.

In his paper, "My Beautiful Tax Reform," Slemrod, director of the Office of Tax Policy Research and the Paul W. McCracken Collegiate Professor of Business Economics and Public Policy, discusses economic assumptions and value judgments on tax systems such as the national retail sales tax, value added tax and flat tax.

IRS Attorney Directory by Code Section & Subject Matter

The monthly update of the 118-page directory of attorneys in the IRS Chief Counsel's Office, arranged by Internal Revenue Code Section and Subject Matter, for March 2006, is available on the Tax Analysts' web site.

Panel Discussion of ABA's Proposed New Diversity Standards Today at Georgetown

The Federalist Society's Civil Rights Practice Group and Georgetown Student Chapter will host a panel discussion on Mandated Racial Admissions in Hiring at Law Schools? An Examination of the Newly Proposed ABA Standard today at noon at the Georgetown Law Center:

At its midyear meeting, the ABA proposed a new standard (here and here) that would purportedly require law schools to consider race and ethnicity in its admissions and faculty hiring practices. The standard further states that compliance with conflicting law will not excuse a law school from complying with the ABA standard. The standard, not yet formally adopted by the ABA, is scheduled to be voted on by the ABA House of Delegates at its annual meeting in August. The proposed ABA standard has particular significance because the ABA is recognized by the U.S. Department of Education as the accrediting entity for law schools. Our panel of experts will discuss the pros and cons of the proposed ABA standard.

• Moderator:  Tom Morgan, George Washington University Law School
• Panelists:
  • David Bernstein, George Mason University School of Law
  • Roger Clegg, Center for Equal Opportunity
  • Peter Edelman, Georgetown University Law Center
  • James Freeman, The Advancement Project

For prior TaxProf Blog coverage, see:

• Bernstein: ABA Orders Law Schools to Engage in Racial Preferences in Admissions and Hiring Contrary to Law (2/12/06)
• ABA Responds to "Affirmative Blackmail" Charge (2/14/06)
• More on the ABA and Law School Diversity (2/15/06)
• Still More on the ABA, AALS, and Law School Diversity (2/16/06)
• More Profs Weigh In On Law School Diversity (2/17/06)
• Update on the ABA and Law School Diversity (2/18/06)
• Update on the ABA and Law School Diversity (2/19/06)
• Groups Opposed to ABA's New Diversity Requirements Seek Revocation of ABA's Power to Accredit Law Schools (3/10/06)

For recent commentary, see:

• David Berstein, Is African-American Enrollment in Law School Down? (The Volokh Conspiracy) (3/16/06)
• Gail Heriot, The ABA (The Right Coast) (3/15/06)
• Abigail Thernstrom & Roger Clegg, Bad Standards The ABA Goes to the Grutter (National Review) (3/16/06)

Kenyon on Talking Sense on Property Tax Relief

Daphne A. Kenyon (D.A. Kenyon & Associates, Windham, NH) has published Talking Sense on Property Tax Relief, 39 State Tax Notes 897 (Mar. 20, 2006), also available on the Tax Analysts web site as Doc 2006-4312, 2006 STT 53-1.  Here is part of the Introduction:

In recent years, rising home values have led to increased assessed values and higher property taxes....Those higher property taxes have spurred controversy and debate across the United States. In response to voter pressure, legislatures across the country have debated and approved property tax relief measures. According to the National Taxpayers Union, an advocacy group, voters in 20 states are actively seeking property tax relief....

This article is divided into three main sections. First, it addresses two major misconceptions regarding property tax burdens. The second section discusses property tax relief measures states should avoid. The third section proposes policy options that could offer property tax relief without pernicious side effects. Many commonly espoused property tax relief measures are severely flawed. Citizens, state and local policymakers, and nonprofits should work to channel property tax relief efforts toward the best, not the worst, options.

IRS Releases 2005 Data Book

The IRS has announced that the 2005 IRS Data Book (Publication 55B) is now available.  The data book contains tables detailing, among other subjects, the amount of revenue collected, the number of audits (examinations) conducted, and the number of refunds issued in the 2005 Fiscal Year.

The data book documents the IRS's increase in enforcement:  the IRS completed more than 1.215 million audits of individuals, up 21% from last year. The data book also provides state-by-state statistics.

Saturday:

• Tax Prof Profile:  Henry Ordower
• A High Tech "Letterhead Effect"?
• Supreme Court Releases Transcript of Oral Argument in Cuno
• H&R Block Responds to Spitzer Lawsuit
• Tax Analysts:  Feinschreiber & Kent on Domestic Production Deduction for Software and Sound Recodings
• Dodge on Borrowing and Accruals in a Realization Income Tax
• Guenther & Sansing on Do Tax-Exempt Investors Mitigate the Dividend Tax Penalty?

Sunday:

• Top 5 Tax Paper Downloads
• WSJ:  Perfect Timing:  Stock Option Grants at 52-Week Lows
• André Agassi v. British Taxman: 3rd Set
• NY Times: Why Do So Few Women Become Partners in Big Law Firms?
• Bayoumi, Botman & Kumar on Macroeconomic Effects of Social Security and Tax Reform in the United States
• Dickert–Conlin, Fitzpatrick & Hanson on Utilization of Income Tax Credits by Low–Income Individuals
• Tax Analysts:  The Exit Tax -- A Perfectly Bad Idea

Top 5 Tax Paper Downloads

There is a bit of movement on this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with a new paper debuting at #5 and a paper returning to the list at #4: 

1.  [153 Downloads]  Words!  Words!  Words!  Teaching the Language of Tax, by Stephen B. Cohen (Georgetown) [blogged here]

2.  [127 Downloads]  Inside Zarin, by Theodore P. Seto (Loyola-L.A.) [blogged here]

3.  [94 Downloads]  Relitigating Seaborn: Taxing the Community Income of California Registered Domestic Partners, by Patricia A. Cain (Iowa) [blogged here]

4.  [63 Downloads]  Attractive Complexity: Tax Deregulation, the Check-the-Box Election and the Future of Tax Simplification, by Steven Dean (Brooklyn) [blogged here]

5.  [60 Downloads]  Government as Contractual Claimant: Tax Policy and the State, by Jonathan R. Macey (Yale) [blogged here]

WSJ: Perfect Timing: Stock Option Grants at 52-Week Lows

The Weekend Wall Street Journal has a fascinating article, The Perfect Payday:  Some CEOs Reap Millions by Landing Stock Options When They Are Most Valuable.  Luck -- Or Something Else?, by Charles Forelle & James Bandler.  The article tracks numerous examples of lucrative stock options that are granted to corporate executives when the stock is at or near a 52-week low, thus guaranteeing the executives the maximum possible profit. The article notes that pure luck cannot explain the remarkable timing:

Just lucky? A Wall Street Journal analysis suggests the odds of this happening by chance are extraordinarily remote -- around one in 300 billion. The odds of winning the multistate Powerball lottery with a $1 ticket are one in 146 million. Suspecting such patterns aren't due to chance, the Securities and Exchange Commission is examining whether some option grants carry favorable grant dates for a different reason: They were backdated. The SEC is understood to be looking at about a dozen companies' option grants with this in mind.

The Journal's analysis of grant dates and stock movements suggests the problem may be broader. It identified several companies with wildly improbable option-grant patterns. While this doesn't prove chicanery, it shows something very odd: Year after year, some companies' top executives received options on unusually propitious dates.

The Journal chronicles many examples, including this one:

On a summer day in 2002, shares of Affiliated Computer Services Inc. sank to their lowest level in a year. Oddly, that was good news for Chief Executive Jeffrey Rich. His annual grant of stock options was dated that day, entitling him to buy stock at that price for years. Had they been dated a week later, when the stock was 27% higher, they'd have been far less rewarding. It was the same through much of Mr. Rich's tenure: In a striking pattern, all six of his stock-option grants from 1995 to 2002 were dated just before a rise in the stock price, often at the bottom of a steep drop.

Mr. Rich called his repeated favorable option-grant dates at ACS "blind luck." He said there was no backdating, a practice he termed "absolutely wrong." A spokeswoman for ACS, Lesley Pool, disputed the Journal's analysis of the likelihood of Mr. Rich's grants all falling on such favorable dates. But Ms. Pool added that the timing wasn't purely happenstance: "We did grant options when there was a natural dip in the stock price," she said. On March 6, ACS said that the SEC is examining its option grants.

The Journal worked with Erik Lie, Associate Professor and Henry B. Tippie Research Fellow at the Henry B. Tippie College of Business, University of Iowa:

The analysis bolsters recent academic work suggesting that backdating was widespread, particularly from the start of the tech-stock boom in the 1990s through the Sarbanes-Oxley corporate reform act of 2002. If so, it was another way some executives enriched themselves during the boom at shareholders' expense. And because options grants are long-lived, some executives holding backdated grants from the late 1990s could still profit from them today....

The Wall Street Journal asked Erik Lie, an associate professor of finance at the University of Iowa who has studied backdating, to generate a list of companies that made stock-option grants that were followed by large gains in the stock price. The Journal examined a number of the companies, looking at all of their option grants to their top executive from roughly 1995 through mid-2002. Securities-law changes in 2002 curtailed the potential for backdating a grant. Executives typically receive option grants annually. Mr. Lie and other academics say a pattern of sharp stock appreciation after grant dates is an indication of backdating; by chance alone, grants ought to be followed by a mixed bag of stock performance -- some rises, some declines.

Professor Lie's paper on the subject is On the Timing of CEO Stock Option Awards, 51 Management Science 802 (May 2005).  Here is the abstract:

This study documents that the abnormal stock returns are negative before unscheduled executive option awards and positive afterward. The return pattern has intensified over time, suggesting that executives have gradually become more effective at timing awards to their advantage, and possibly explaining why the results in this study differ from those in past studies. Moreover, I document that the predicted returns are abnormally low before the awards and abnormally high afterward. Unless executives possess an extraordinary ability to forecast the future marketwide movements that drive these predicted returns, the results suggest that at least some of the awards are timed retroactively.

The Journal observes:

Companies have a right to give executives lavish compensation if they choose to, but they can't mislead shareholders about it. Granting an option at a price below the current market value, while not illegal in itself, could result in false disclosure. That's because companies grant their options under a shareholder-approved "option plan" on file with the SEC. The plans typically say options will carry the stock price of the day the company awards them or the day before. If it turns out they carry some other price, the company could be in violation of its options plan, and potentially vulnerable to an allegation of securities fraud.

It could even face accounting issues. Options priced below the stock's fair market value when they're awarded bring the recipient an instant paper gain. Under accounting rules, that's equivalent to extra pay and thus is a cost to the company. A company that failed to include such a cost in its books may have overstated its profits, and might need to restate past financial results.

Steve Bainbridge (UCLA) agrees:

There's nothing inherently illegal about either paying large compensation or even backdating an option contract, so long as proper corporate procedures were followed and the grant does not amount to a waste of corporate assets. Where public corporations are concerned, however, failure to disclose the backdating likely would constitute securities fraud. In particular, failure to do so probably would constitute a material omission with respect to the executive compensation disclosures required in the proxy statement for the corporation's annual meeting.

The Journal also explains that "[a]nother possible explanation for big rises in stock prices following grants is that executives knew favorable company news was coming and timed the grants just before it." Indeed, Iman Anabtawi (UCLA) made this point in Secret Compensation, 82 N.C. L. Rev. 835 (2004). But the Journal contends that "academics think timing for company news is a less likely explanation for the patterns, given the consistency of the stock climbs after grant dates. Also, for many of the companies the Journal examined, no obvious company news followed closely upon the option grants."

Update:  Geoffrey Manne has more here.

André Agassi v. British Taxman: 3rd Set

Interesting English tax case involving André Agassi, as reported in today's Telegraph:  Tax on Stars Is Unfair, Says Agassi as £500m Battle Goes to Lords, by Adam Lusher:

It is the match that pits Gordon Brown against André Agassi supported by Britney Spears, Tiger Woods and the Williams sisters. Tony Blair may not be taking sides (yet) but for Spears, Agassi and friends all eyes, surely, will this week turn to that great sporting arena: Committee Room One of the House of Lords. It is here, with £500 million at stake, that Agassi and his lawyers will contest the final set in the biggest match of their lives: Agassi v Robinson (Inspector of Taxes). Victory means Agassi will escape paying £27,500 to the British taxman. More important, Team Agassi estimates its stand could result in a whole galaxy of stars demanding the Inland Revenue return a total of up to £500 million in taxes, paid since 1988....

"This covers all the overseas entertainers who come to the UK to perform: sportsmen, football players, pop stars," explained Mike Warburton, a senior tax partner at Grant Thornton, the global financial consultancy. "All their agents will be looking at this, Britney's included." As Spears may, or may not, know, this is all because of section 555(2) of the Income and Corporation Taxes Act 1988… and Thriller by Michael Jackson. "It's all Michael Jackson's fault," explained Mr Warburton. "He started this. The law was introduced following a series of Michael Jackson concerts. "Overseas entertainers were making vast profits in the UK, and the British taxman wasn't getting enough." Hence the 1988 Act, section 555(2) obliging promoters and sponsors to deduct tax before paying stars for work in Britain.

For a while, the taxman was happy - very happy, because he wasn't just getting money from deals with British-based companies. If, say, a certain American tennis star had sponsorship deals with Nike, an American sportswear company, and Head, an Austrian sports equipment manufacturer, the British Revenue was entitled to some of that cash too. Why? Because, Mr Agassi, for a proportion of the tax year you were earning your sponsorship money while playing at Wimbledon. (Time spent in leather catsuits at Wembley Arena was taxable too, Britney.)

So Agassi took up the fight for multimillionaire entertainers. He had a disastrous first set, his arguments smashed all over the High Court by Mr Justice Lightman in March 2004, but recovered brilliantly in the Appeal Court. Now, it's all down to the third set, the House of Lords appeal by the Revenue. Dispensing with serve and volley, Agassi is relying on the old "principle of territoriality" tactic. If "territoriality" applies, he owes Mr Brown nothing because Agassi Enterprises, his company, and his sponsors Nike and Head are all outside British territory with no "tax presence" in the UK.

For the Agassi v. Robinson opinions, see:

• High Court of Justice (Chancery Division) (3/17/04)
• Supreme Court of Judicature Court of Appeal (Civil Division) (12/2/05)

See also Tax Advisor (March 2005).

NY Times: Why Do So Few Women Become Partners in Big Law Firms?

Interesting article in the Sunday New York Times, Up the Down Staircase:  Why Do So Few Women Reach the Top of Big Law Firms?, by Timothy L. O'Brien:

Although the nation's law schools for years have been graduating classes that are almost evenly split between men and women, and although firms are absorbing new associates in numbers that largely reflect that balance, something unusual happens to most women after they begin to climb into the upper tiers of law firms. They disappear.

According to the National Association for Law Placement, a trade group that provides career counseling to lawyers and law students, only about 17% of the partners at major law firms nationwide were women in 2005, a figure that has risen only slightly since 1995, when about 13% of partners were women. Even those who have made it to the top of their profession say that the data shows that women's legal careers involve distinct, often insurmountable hurdles and that those hurdles remain misunderstood or underexamined....

Nearly half of all law school students are women, but they still represent fewer than 20% of law firm partners, on average.  In some cities, the percentage is even lower:

• Highest:
  • Miami: 23.7%
  • New Orleans:  22.8%
  • Denver:  22.3%
  • San Francisco:  21.8%
• National Average:  17.3%
• Lowest:
  • Orange County, CA:  12.7%
  • Northern Virginia:  12.4%
  • Charlotte, NC:  11.5%
  • Salt Lake City:  8.7%

Bayoumi, Botman & Kumar on Macroeconomic Effects of Social Security and Tax Reform in the United States

Tamim Bayoumi (IMF & Centre for Economic Policy Research), Dennis P.J. Botman (University of Amsterdam, Faculty of Economics & Econometrics) & Manmohan Kumar (IMF) have posted Macroeconomic Effects of Social Security and Tax Reform in the United States on SSRN.  Here is the abstract:

We use the IMF`s Global Fiscal Model to evaluate recent proposals to reform social security and the tax system in the United States. Introducing personal retirement accounts is unlikely to yield significant macroeconomic benefits unless it spurs additional fiscal consolidation to prevent a large increase in government debt. Similar benefits are obtained if the social security surplus is placed in a lockbox while maintaining the same debt target. Lowering the taxation of investment income is beneficial, but only if the reform is revenue neutral. Debtneutral social security and tax reform in the United States has large positive effects on the rest of the world.

Dickert–Conlin, Fitzpatrick & Hanson on Utilization of Income Tax Credits by Low–Income Individuals

Stacy Dickert–Conlin (Michigan State University, Department of Economics), Katie Fitzpatrick (Syracuse University, Department of Economics & Center for Policy Research) & Andrew Hanson (Syracuse University, Department of Economics & Center for Policy Research) have published Utilization of Income Tax Credits by Low–Income Individuals, 58 Nat'l Tax J. 743 (Dec. 2005).  Here is the abstract:

The Internal Revenue Service––a sub–agency that exists to collect revenue––has the task of administering and enforcing a wide array of social policy: from subsidies for college and child care expenses, to creating jobs in depressed areas, and assisting welfare recipients with employment. While these new or expanded credits represent a new paradigm in the delivery of social policy, little is known about who uses these programs and, equally important, who does not use these programs. Understanding utilization is a key to understanding how effective this means of transferring income isand whether we are reaching the targeted populations. This paper provides a framework for thinking about utilization of tax credits among low–income individuals, supported by existing research on credit utilization.With the existing data, it appears that utilization is by far the largest for the EITC, possibly because it is the oldest of these programs, the only refundable program, and the best targeted at low–income individuals. Utilization is low among low–income individuals in some tax credits because low-income individuals are not eligible. A redesign, including reducing complexity and administrative burdens or making these programs refundable,would result in the programs reaching those that they are ostensibly targeted towards.Conditional on being eligible, one common factor associated with increasing participation in many of these programs is a high benefit to cost ratio and sophistication with the tax system, whether that be through the use of a paid preparer, higher education levels, or experience with the tax system. Policymakers should think creatively about reducing filing burdens to increase participation, such as through wider use of electronic filing.

The Exit Tax -- A Perfectly Bad Idea

Charles M. Bruce (Moore & Bruce, Washington, D.C.), Lewis Saret (Moore & Bruce, Washington, D.C.), Stéphane Lagonico (Byrne-Sutton Bonnard Lawson Meakin & Associes, Lausanne, Switzerland) & Steve Trow (Trow & Rahal, Washington, D.C.) have published The Exit Tax -- A Perfectly Bad Idea, 110 Tax Notes 1225 (Mar. 13, 2006), also available on the Tax Analysts web site as Doc 2006-3913, 2006 TNT 49-34.  Here is the Introduction:

The pending tax reconciliation bill (H.R. 4297) contains provisions that would impose an exit tax (or mark-to-market tax) on some U.S. citizens and long-term residents. Different versions of an exit tax have been proposed several times over the last six to seven years and, in fact, the Senate has passed an exit tax on three previous occasions. While conventional wisdom is that those proposals, which have been voted down in the past, will again be dropped by the conference committee, many people have a queasy feeling this time.

The exit tax is a bad idea for policy and technical reasons. It has been considered in the past and rejected. The Joint Committee on Taxation, in its comprehensive February 2003 study, did not embrace the approach. Not only should it not be enacted into law, but it should also be dropped once and for all.

This discussion is summary in nature. Renunciation of citizenship or relinquishment of permanent residency status (both commonly referred to as expatriation) is a very serious step and should be undertaken only after the most careful consideration of all the legal and personal consequences. It is unfortunate that individuals and families must worry about developments like this. They should not have to arrange their lives on short notice around U.S. tax legislative proposals.

Henry M. Ordower (St. Louis)

• A.B. 1967, Washington University
• M.A. 1970, Chicago
• J.D. 1975, Chicago

 

 

“On a dark and stormy night” in March, 1972, I concluded that it was time to abandon the Ph.D. work in Scandinavian Languages and Literatures I had pursued for five years and change to a field offering opportunities for employment and the ability to provide for our two sons. Our third son joined the group during my final year in law school, while my wife Ilene was in the middle of her MBA program at the University of Chicago. With ABD (all but dissertation) in hand, I applied to a couple of law schools. The University of Chicago admitted me. Knowing a degree from the U of C might open the door to law teaching, I put aside the Ph.D. work that still drew me in order to develop myself in law. Twenty-six years later in December 1998, while serving as vice president and general counsel and to an emerging markets, hedge fund manager (on a leave from SLU Law after more than twenty years teaching), Ilene and I, following a rough crossing of the Drake passage, stepped from a zodiac onto Antarctica, our seventh continent (six by the European view). By then all our boys were finished with college and establishing themselves in their careers. Life and tax law indeed have been great to me.

Continue reading

A High Tech "Letterhead Effect"?

There is a widespread fear among law profs like me teaching at non-Top 25 schools that student law review editors faced with a deluge of submissions inevitably use an author's school as a screening tool in selecting which articles to take a serious look at.  Is there any evidence that the use an author's school as a proxy for quality -- the "letterhead effect" -- has increased in recent years along with the growth in the number of articles received by the leading law reviews?

Tax Prof Kevin M. Yamamoto has published an interesting article on the subject, What's in a Name?  The Letterhead Impact Project, 22 J. Legal Stud. Educ. 65 (2004).  Kevin notes that several authors have admitted to a letterhead effect when they served as law review articles editors as students. See, e.g., Ronald J. Krotoszynski, Jr., Legal Scholarship at the Crossroads: On Farce, Tragedy, and Redemption, 77 Tex. L. Rev. 321, 329 n.25 (1998) (admitting that as an articles editor for Duke Law Review he chose to read articles from professors at top ten schools first); Nathan H. Saunders, Student-Edited Law Reviews: Reflections and Responses of an Inmate, 49 Duke L.J. 1663, 1666 (2000) (stating his bias toward authors at ‘‘top schools’’).

Kevin recounts the tale of a colleague who submitted the same version of an article on two differnt letterheads -- half of the articles were mailed to law reviews with letterhead of the U.S. News Tier 1 school at which the colleague was visiting, and the other half of the articles were mailed with letterhead of the author's U.S. News Tier 4 home school.  The result?  The letterhead made no difference in the quality of the offers received on the piece.

Christine Hurt today notes a high tech version of the letterhead effect:  the ExpressO article submission service:

The subject line [of the email sent by ExpressO to the law reviews along with the article, author's cover letter, and C.V. as attachments] contains two pieces of information. Guess what they are? Author name and institution... Obviously, whatever information that ExpressO can give to signal to the editors information to help the editors in their review process is helpful to them, and ExpressO gives not the title name, but the name of the institution. Without ever opening your attached article, or printing it, or reading your cover letter, or looking at your c.v., or knowing the title of your article, law review editors could sort their submissions in their in-boxes. I'm not saying it happens; I'm just saying it could. And, from a law review's standpoint, the extra hassle of dealing with low-cost ExpressO submissions might require something from ExpressO to help deal with the extra load on the system. But, it doesn't help the junior law professor with publication pressures!

Funmi Arewa, Ken Dau-Schmidt, Bill Henderson, and Andy Morriss are working on an empirical study of legal scholarship which will, among other things, measure the impact of the letterhead effect.

At the 2007 AALS Annual Meeting in San Francisco, the Section on New Law Professors is sponsoring a panel on Scholarship Issues Faced by New Law Professors.  I am flattered to be on a panel put together by Bobby Chesney along with Dorothy Brown, Mark Godsey, and Larry Solum.  Mark will be reprising a wonderful talk he gave to our faculty on the placement of law review articles.  He is a fantastic scholar who has had spectacular success with his law review placements in his five years in the business, with articles in the California, Duke, Georgetown, and Minnesota law reviews.

Supreme Court Releases Transcript of Oral Argument in Cuno

The Supreme Court has released the transcript of the oral argument in Cuno v. DaimlerChrysler, Inc., 386 F.3d 738 (6th Cir. 2004), cert. granted, Nos. 04-1704 & 04-1724.  The case involves the constitutionality of Ohio's investment tax credit (as well as the procedural question of Respondents' standing).  Among many interesting exchanges was this between Peter Enrich (Northeastern; Counsel for Respondents) and Justice Scalia:

Mr. Enrich:  In a footnote in Flast [v. Cohen], the Court specifically says, "Having now decided that there's Establishment Clause standing, we can also reach the free-exercise question without discussing whether there would be independent standing."

Justice Scalia:  I had not recollected that footnote. I will -- I will find it. I don't read footnotes, normally.

(Hat Tip:  Kristin Hickman.)

H&R Block Responds to Spitzer Lawsuit

On Wednesday, we blogged New York Attorney General Eliot Spitzer's $250 million lawsuit against H&R Block, accusing the nation's largest tax preparation service of fraudulently pushing clients to invest their tax refunds in Express IRS, which allegedly had high fees and low returns.  Mark A. Ernst, Chairman & CEO of H&R Block, has published a stinging response in a Wall Street Journal op-ed, "Unfair Attack":

I believe I speak for every one of H&R Block's more than 7,000 franchisees and company employees in the state of New York in saying that this suit is an unfair attack on a good product that plays a key role in our mission to help lower- and middle-income Americans start saving for retirement.

Update:  New York Times editorial, Another Black Eye for H&R Block:

H&R Block denies any wrongdoing and plans to fight in court. Regardless of the outcome, the controversy should be a reminder that low- and moderate-income earners need straightforward, low-cost ways to save. Conventional I.R.A.'s are inconvenient and offer tax breaks meant primarily for high-income people. Employer-based savings plans, like 401(k)'s, are often not available. The dearth of easy ways to save is surely a big reason that hundreds of thousands of people have signed up for the H&R Block offering.

Feinschreiber & Kent on Domestic Production Deduction for Software and Sound Recordings

Robert Feinschreiber & Margaret Kent (both of productionincentive.com) have published Domestic Production Deduction for Software and Sound Recordings, 110 Tax Notes 1184 (Mar. 13, 2006), also available on the Tax Analysts web site as Doc 2006-4323, 2006 TNT 49-36.  The article examines the section 199 production activites deduction for computer software and sound recordings.

Dodge on Borrowing and Accruals in a Realization Income Tax

Joseph M. Dodge (Florida State) has posted Exploring the Treatment of Borrowing and Accruals in a Realization Income Tax on SSRN.  Here is the abstract:

In this article, Dodge examines the tax treatment of borrowing under the income tax. The current income tax treatment is contrasted with a cash-method treatment, which is inclusion of borrowed funds coupled with the deduction of the principal and (where appropriate) the interest. (An alternative would be exclusion of the borrowing coupled with disallowance of both principal and interest.) The current approach is appropriate in the case of debt-financed investments (capital expenditures) that produce fully-taxed income, but the cash-method approach is right for debt financed-expenses (and lightly-taxed investments). Dodge discusses the accrual method of accounting for liabilities to pay future expenses, and concludes that cash-method treatment is theoretically correct in most circumstances.

Burge & Ihlanfeldt on Estimating Aggregate Levels of Property Tax Assessment Within Local Jurisdictions

Gregory S. Burge & Keith R. Ihlanfeldt (both of Florida State University, DeVoe Moore Center & Department of Economics) have published Estimating Aggregate Levels of Property Tax Assessment Within Local Jurisdictions: An Extension of the Ihlanfeldt Model to Multiple Land Uses, 58 Nat'l Tax J. 723 (Dec. 2005).  Here is the abstract:

Sales ratio studies are currently used by a majority of states to estimate jurisdiction–specific levels of property tax assessment (LOAs) that are used to equalize educational funding. Sales chasing and the failure to adjust sales for time may cause estimates to inaccurately reflect true LOAs, leading to funding inequities. A recently developed econometric model with minimal data requirements has been shown to accurately estimate LOAs for single-family property. This note provides evidence showing that the model accurately estimates LOAs for other major land use categories.

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National Law Journal: Cravath Tax Associate's Trouble Brings Spotlight

Today's National Law Journal has an interesting article about James Colliton, the 42-year old former Cravath tax lawyer and married father of five who is in jail on teenage rape and prostitution charges:  A White-Shoe Firm Gets Some Unwelcome Attention; Cravath Associate's Trouble Brings Spotlight, by Leigh Jones:

In terms of public relations, having an attorney on your law firm's employee roster who is accused of paying for sex with young girls may be about as bad as it gets. Cravath, Swaine & Moore most likely thinks so, as it plays defense against the media in the frenzy surrounding the arrest of James Colliton. The New York firm's former tax associate was captured this month in a New York hotel after fleeing from authorities. He was charged with having sex with two teenage girls and paying their mother in exchange.

Providing a contrast between the white-shoe crowd and, if true, some very dark behavior, the situation serves as an example of what to do -- and perhaps what not to do -- in controlling the damage created by association. Cravath has declined to comment on the matter, saying through a spokesman only that Colliton is no longer with the firm. But the "no comment" approach is a bad move for businesses in trouble, said Lanny Davis, head of the legal crisis communications practice in the Washington office of Orrick, Herrington & Sutcliffe....

Cravath's current public relations challenges, though bad, could be worse for the firm, said Carey Bertolet, a managing director at BCG Attorney Search in New York. Scandals surrounding financial wrongdoing or systemic malfeasance within law firms are far more harmful to their reputations than the alleged criminal behavior of lone attorneys, if the behavior is unrelated to the practice itself, she said. "The more Wall Street Journal kinds of problems are more disturbing than something you'd find in the New York Post," Bertolet said, referring to a local tabloid known for its crime stories.

For prior TaxProf Blog coverage, see:

• Former Cravath Tax Lawyer Indicted on Teenage Rape and Prostitution Charges
• Police Apprehend Former Cravath Tax Lawyer Wanted on Teenage Rape and Prostitution Charges
• NY Post: "Pervert" Tax Lawyer Is Broke

Craft & Schmidt on An Analysis of the Effects of Vehicle Property Taxes on Vehicle Demand

Erik D. Craft & Robert M. Schmidt (both of University of Richmond, Robins School of Business, Department of Economics) have published An Analysis of the Effects of Vehicle Property Taxes on Vehicle Demand, 58 Nat'l Tax J. 697 (Dec. 2005).  Here is the abstract:

Vehicle personal property taxes recently existed in 31 states. Using data collected during the phaseout of the tax in Virginia, we analyze the effect of differing tax rates on the personal vehicle count and value data in 134 locales. We find that each increase in the effective property tax of one percentage point leads to a reduction in vehicular capital of over 5 percent. This result implies that the average dollar of tax revenue caused a deadweight loss of about 25 cents. Our results also provide cost and redistribution lessons for policymakers considering the enactment or elimination of a vehicle property tax.

Shapiro Presents The Political Uses of Public Opinion: Lessons from the Estate Tax Repeal at Boalt Hall

Ian Shapiro (Yale) presented The Political Uses of Public Opinion: Lessons from the Estate Tax Repeal (with Mayling Birney) yesterday at the UC-Berkeley Kadish Center for Morality, Law & Public Affairs as part of its Workshop Series in Law, Philosophy, and Political Theory.  Here is the abstract:

We examine the recent battle for federal estate tax repeal in order better to understand the role of public opinion in enacting legislation, particularly regarding low salience issues. In Part I, our analyses of the polling data show how the contours of public opinion were strategically interpreted in the policy debate. When the issue was framed as a matter of fairness, misperceptions of self-interest and principled beliefs about fairness combined to yield apparently overwhelming support for repeal. However, when it was instead framed as a matter of priority, majorities supported estate tax reform options over repeal. In Part II, we examine how interest groups leveraged their findings about public opinion into messaging, coalition-building, and organized campaigns that dramatically changed the public image of repeal from extreme to mainstream, and moved it off the economic policy ideological spectrum. By selectively revealing, and threatening to influence, latent public opinion, interest groups could help clear and sow apparent minefields of public opinion. In relating our analyses to the literature, we show that the estate tax repeal cannot be explained by common political science theories, such as thermostatic, power elite, or latitudinal models of public opinion. We propose an alternative “running room” model, in which policy outcomes depend on how politicians’ perceptions about a potential public opinion backlash are manipulated—even when public opinion itself does not change.

NY Times: Lawyer of Many Hats in Tax Shelter Case

Interesting article in today's New York Times:  Lawyer of Many Hats in Tax Shelter Case, by Lynnley Browning:

As Deutsche Bank negotiates with federal prosecutors on a possible settlement over questionable tax shelters, one person has an unusual degree of involvement. Lawrence M. Hill, a tax lawyer at Dewey Ballantine, a large, prestigious law firm, is one of two senior partners who represent Deutsche Bank, Germany's largest bank, in the proceedings.

Mr. Hill, who heads the firm's tax controversy and litigation group out of New York, is a leading member of the American tax bar, and has written extensively on tax shelter issues in trade journals in recent years. But as he defends Deutsche Bank against allegations that it helped to create and sell illicit shelters, Mr. Hill's role in the case has caused a stir among lawyers handling civil lawsuits against Deutsche Bank over shelters. In the mid- to late 1990's, Mr. Hill held senior positions at the law firm formerly known as Brown & Wood, now Sidley Austin Brown & Wood, while from 1989 through 1996, he was assistant general counsel at the accounting firm KPMG. Both firms have been at the heart of the government's investigation into tax shelters. Mr. Hill, 46, held his jobs at a time when both firms were heavily involved in creating and selling questionable shelters with, among others, Deutsche Bank, whom Mr. Hill now represents.

Death and Taxes: A Visual Look at Where Your Tax Dollars Go

Check out the cool chart Death and Taxes:  A Visual Look at Where Your Tax Dollars Go on the deviantART Shop web site (where you can click on the chart and enlarge the image substantially).  (Hat Tip: BoingBoing via  Dan Solove.)

NY Post: Death Tax: Last Rites?

Interesting op-ed in the New York Post:  Death Tax: Last Rites?, by Peter Ferrara (Institute for Policy Innovation & Free Enterprise Fund):

A majority of the Senate favors total death-tax repeal. But Democrats locked in the socialist mindset of the 19th century will mount a filibuster, which requires 60 votes to break.

The most recent count of votes by the Senate Whip's office shows that 52 senators are strongly committed to vote for repeal. Three more (Virginia's John Warner of Virginia, plus Arkansas' Blanche Lincoln and Mark Pryor) are considered leaning toward "aye." Six more senators are deemed toss-ups: Republicans John McCain (Ariz.), George Voinovich (Ohio) and Olympia Snowe (Maine), and Democrats Evan Bayh (Ind.), Mary Landrieu (La.) and Max Baucus (Mont.). Senators leaning "nay" but persaudable include Republican Lincoln Chafee (R.I.) and Democrats Ken Salazar (Colo.), Patty Murray (Wash.), Maria Cantwell (Wash.), Barack Obama (Ill.)., Diane Feinstein (Calif.) and Ron Wyden (Ore.) Want to kill the death tax? Then contact any or all of these senators, and demand that they join the execution squad.

Raby & Raby on Contributions of Property to Charity

Burgess J.W. Raby & William L. Raby have published Property Contributions:  The Devil Is in the Details, also available on the Tax Analysts web site as Doc 2006-5049, 2006 TNT 51-29.  Here is the Introduction:

Much of the tax law may be a mystery to our clients, but one thing they think they understand is the charitable contribution deduction. Perhaps that is the result of the educational efforts of the many organizations that seek their donations. However, as is the way with every tax law provision, what appears to be relatively simple can easily become complex, depending on the facts, and even tax people sometimes get lost in charitable contribution convolutions. The worst problems seem to arise with charitable gifts of property, so we will discuss a few cases dealing with those.

Call for Papers: National Tax Association Annual Conference on Taxation

The National Tax Association has issed a call for papers for its 99th Annual Conference on Taxation on November 16-18, 2006 at the Hyatt Regency in Boston:

The 99th Annual Conference on Taxation will cover a broad range of topics including, but not limited to, taxation and tax policies; expenditure policies; government budgeting; intergovernmental fiscal relations; and subnational, national, and international public finance. This year, we are especially interested in sessions or topics that highlight or include interdisciplinary or multidisciplinary research (e.g., economics, accounting, and law), and research papers authored or coauthored by PhD students.

You are invited to submit a paper or an idea for a session. In addition, please inform us if you would like to be considered as a moderator or discussant. All proposals should be postmarked or e-mailed by May 1, 2006 . Decisions concerning the inclusion of papers and sessions will be announced in June 2006. Authors of accepted papers will be offered the opportunity to publish them in the Proceedings. All presenters will be required to register and pay a conference registration fee.

For a paper, please submit the following:

1. Title of the paper
2. An abstract of the paper, not to exceed two pages; and a draft of the paper, if available
3. Names and contact information for all authors, including mailing and e-mail addresses and phone numbers; for papers with multiple authors, please indicate the corresponding author and the actual presenter

For a session idea, please submit the following:

1. Title and a brief description of the session
2. An abstract, not to exceed two pages, for suggested papers for the session; and, a draft of each paper, if available. Include the names and affiliations of all authors
3. Name and contact information for the person proposing the session

To be considered as a moderator or discussant, please submit the following:

1. Name and contact information, including mail and e-mail addresses and phone numbers
2. General areas of interest

E-mail submissions are preferred and should be sent here.

IRS Outlines 26 Arguments That Will Not Work to Reduce Your Taxes

With April 15 now less than one month away, the IRS has released Notice 2006-31 to "remind taxpayers to steer clear of [26] abusive tax-avoidance schemes that purportedly allow them to reduce or eliminate taxes based on false or frivolous arguments.    Some samples:

• “Wages are not taxable income, pursuant to section 1001, because taxpayers have basis in their labor equal to the fair market value of the wages they receive; thus, there is no gain to be taxed.”
• The 16th Amendment is invalid because it contradicts the original Constitution, was not properly ratified, and lacks an enabling clause.”
• "I am not a ‘citizen’ or a ‘person’ within the meaning of the Internal Revenue Code.”
• "Nothing in the Internal Revenue Code imposes a requirement to file a return.”

The IRS also issued five accompanying revenue rulings to address specific frivolous claims:

• Rev. Rul. 2006-17:  Inserting the phrase “nunc pro tunc” on a return or other document submitted to the Service has no legal effect and does not validate an invalid return, make a delinquent return timely, invalidate a signature, create a claim for refund of taxes previously paid, or reduce one’s federal tax liability.
• Rev. Rul. 2006-18:  Any argument that Forms W-2 only record and report payments made to federal employees, or that only federal employees or residents of the District of Columbia or federal territories and enclaves earn wages subject to tax, has no merit and is frivolous.
• Rev. Rul. 2006-19:  An individual cannot escape taxation by attributing income to a purported trust. The Service will take vigorous enforcement action against frivolous arguments relating to trusts.
• Rev. Rul. 2006-20:  Any argument that Forms W-2 only record and report payments made to federal employees, or that only federal employees or residents of the District of Columbia or federal territories and enclaves earn wages subject to tax, has no merit and is frivolous
• Rev. Rul. 2006-21:  An individual cannot escape taxation by attributing income to a purported trust. The Service will take vigorous enforcement action against frivolous arguments relating to trusts.

Update:  Joe Kristan has more here.

Judge Orders Locks Changed on Tax Preparer's Door, Notice Posted on "Door or Widow"

Interesting lead in a story in the St. Paul Pioneer Press:

A federal judge on Wednesday ordered the locks changed on the front door of a St. Paul tax preparer who ignored a court order to stop preparing federal income tax returns.

The case is United States v. Sonibare & Liberty Financial Group, Inc., Civil No. 06-497 (D. Minn. 3/15/06).  Here is the relevant portion of the court's order:

That in order to secure compliance with the Court’s Order of March 7, 2006, the Court finds it necessary to direct that the United States Marshal’s Service, in consultation with the Internal Revenue Service, specifically Agent Nona Bosshart, and any other designated individuals, to immediately proceed to Defendant Nash Sonibare’s place of business, known as Liberty Financial Group, Inc., 1821 University Avenue, Suite N942, St. Paul, Minnesota, to change the locks without further order of this Court and to prominently post an order on the door or widow [sic] of the Defendant’s business, consistent with the Court’s March 7, 2006 Order and in consultation with the Internal Revenue Service.

For prior Department of Justice press releases about the case, see:

• February 7, 2006
• March 10, 2006

CBPP Releases 50-State Ranking of Revenue Losers if President Bush's Tax Cuts Are Enacted

The Center on Budget and Policy Priorities has released Tax Cuts Proposed in President’s Budget Would Ultimately Cause Large State Revenue Losses, by Iris J. Lay:

The fiscal year 2007 budget that the President submitted on February 6 includes large proposed new tax cuts. At least 16 of the tax-cut provisions proposed in the budget would affect state revenues, causing states to lose as much as $38 billion over the next ten years. Of the 16 provisions that would affect state revenue, 13 would reduce revenue while three would result in very small state revenue gains. Among the provisions that would reduce state revenues are:

The 10 biggest per capita state revenue losers if these tax cuts are enacted would be:

1. Massachusetts
2. Oregon
3. New York
4. Minnesota
5. Connecticut
6. Maine
7. Delaware
8. Wisconsin
9. Virginia
10. North Carolina

University of Chicago's 58th Annual Federal Tax Conference

The March 2006 issue of Taxes--The Tax Magazine is out with the papers from the University of Chicago Law School's 58th Annual Federal Tax Conference held November 11-12, 2005 (and blogged here):

Session I:  International Tax Treatment of Intellectual Property

Topic 1:  Current Strategies for Sharing IP Income Among the Members of a Multinational Group:

Traditionally, US tax rules have focused on IP ownership as the principal touchstone for income entitlement. More recent proposals would sever this relationship and instead focus on the entrepreneurial investment that each group member makes in developing the IP. Whether this change in direction is fair or advisable is a topic for lively debate. While in some cases the proposed approach may permit the IRS to attempt to claw more income into the US tax net, this approach may give well advised taxpayers even greater flexibility to divide the risks and rewards of IP development to minimize their global tax burdens. [blogged here]

Paper:  Gregg D. Lemein (Baker & McKenzie, Chicago), Sharing Intangible Property Within a Multinational Group, 84 Taxes 27 (Mar. 2006)

Commentary:  Paul M. Dau (McDermott Will & Emery, Palo Alto), Current Strategies for Sharing IP Income Among Members of Multination Groups: Cost Sharing Arrangements, 84 Taxes 65 (Mar. 2006)

Topic 2:  How and When the US Should Tax IP Profits:

How should the US tax system characterize the income earned on IP? Should the result hinge on whether the IP income stream is separately identified as a royalty or embedded in transactions involving tangible property? If, after application of the principles to be discussed in the first paper, IP income is determined to arise offshore, should the US permit tax deferral or exemption for this income? Answers to these questions – particularly the last one – should take into account the effect of the US tax rules on the competitiveness of US multinationals in international commerce. [blogged here]

Paper:  Barbara M. Angus (Angus & Nickerson, Washington, D.C.) & Thomas M. Zollo (KPMG, Chicago), Revisiting the U.S. Taxation of Intangible Property Income of COntrolled Foreign Corporations, 84 Taxes 75 (Mar. 2006)

Commentary:  Peter Merrill (PricewaterhouseCoopers, Washington, D.C.), Tax Reform and Intangible Property, 84 Taxes 97 (Mar. 2006)

Session 2:  Retrospectives

Topic 1: Reorganizations Among Commonly Controlled Corporations:

Once-settled issues in the tax treatment of D reorganizations are now anything but. In addition to considering the need for the substantially-all and continuity-of-interest requirements, this presentation will analyze the continuing viability of the liquidation-reincorporation cases and the advisability of harmonizing the D reorganization rules with those of section 304. [blogged here]

Paper:  Michael L. Schultz (McKee Nelson, Washington, D.C.), The Future of Acquisitive D Reorganizations, 84 Taxes 107 (Mar. 2006)

Commentary:  Mark L. Yecies (Columbia), The Future of Acquisitive D Reorganizations:  A Reply to Michael Schultz, 84 Taxes 137 (Mar. 2006)

Topic 2:  Re-Thinking Deferred Compensation:

The patchwork of rules relating to deferred compensation plans, stock options, restricted stock and carried interests in partnerships is complex and the rules themselves are inconsistent. Some rules are compromises reached long ago in the name of administrability that may not reflect current policy judgments. This presentation will analyze the shortcomings of the current system and examine the possibilities for change.  [blogged here]

Paper:  Dana L. Trier (Davis Polk & Wardwell, New York), Rethinking the Taxation of Nonqualified Deferred Compensation:  Code Sec. 409A, the Hedging Regulations and Code Sec. 1032, 84 Taxes 141 (2006)

Commentary:  Richard J. Bronstein (Paul, Weiss, Rifkind, Wharton & Garrison, New York), Rethinking Code Sec. 409A, 84 Taxes 179 (Mar. 2006)

Session 3:  Current Perspectives on Partnership Taxation

Topic 1: Partnerships and Other Arrangements Involving Tax-Exempt Entities:

This presentation will examine the special rules that apply to partnerships and other arrangements involving tax-exempt entities, including the fractions rule of section 514(c)(9), the tax-exempt use rule of section 168(h)(6), the pension-held REIT rules of section 856(h), and the new and confused rules relating to SILO transactions in section 470. It will consider whether these attempts to regulate the intersection between the taxable and tax-exempt sectors are necessary, whether they have been successful and how they might be improved. [blogged here]

Paper:  Patrick C. Gallagher (Kirkland & Ellis, New York), Investment by Tax-Exempt Organizations--Intersections and Collisions with the Taxable World, 84 Taxes 185 (Mar. 2006)

Commentary:  Stuart L. Rosow (Proskauer Rose, New York), Partnerships:   From the Tax Exempt's Perspective, 84 Taxes 209 (Mar. 2006)

Topic 2:  What’s Really Wrong with Section 752?:

Final regulations for allocating partnership recourse liabilities were published more than a decade ago. The intervening years have seen the development of bottom-line guarantees, recourse debt with blockers, limited liability companies, disregarded entities and other tax-planning techniques that may cast doubt on the fundamental judgment of the regulations to allocate recourse liabilities in accordance with the “economic risk of loss.” This presentation will consider this question in the context of the issues under section 752 that arise in a sophisticated partnership tax practice today. [blogged here]

Paper:  Eric B. Sloan (Deloitte Tax, New York) & Jennifer H. Alexander (Deloitte Tax, New York), Economic Risk of Loss:  The Devil We Think We Know, 84 Taxes 217 (Mar. 2006)

Commentary:  Steven C. Todrys (Simpson Thacher & Bartlett, New York), Recourse Debt Is Usually Nonrecourse:  A Comment, 84 Taxes 251 (Mar. 2006)

Tax Court Decides Procedural Issues in Kanter

The Tax Court today decided Kanter v. Commissioner, T.C. Memo. 2006-46 (3/16/06), denying the estate’s motion for abatement of assessments under § 7486 and Estate of Smith v. Commissioner, 115 T.C. 342 (2000), and granting the IRS's motion to stay further proceedings until final decisions are entered in the underlying deficiency cases.

Tax Foundation Releases 50-State Ranking of Federal Expenditures Per Dollar of Tax Paid

The Tax Foundation has released its annual report, Federal Tax Burdens and Expenditures by State.  Here is the Executive Summary:

The Tax Foundation’s annual federal tax burden and expenditure study clarifies the geographical patterns of income redistribution that federal tax and spending policies cause each year. The results of the study have been controversial for years because they show that the nation is not only redistributing income from the prosperous to the poor, but from the middle-income residents of high-cost states to the middle-income residents of low-cost states.

Thanks to a steeply progressive federal income tax, states with higher incomes pay vastly higher federal taxes, payments that are unlikely ever to be matched by federal spending directed to those states. Ironically, most of these high-paying states are the so-called blue states that have generally elected politicians who support a more steeply progressive tax system even though their own constituents bear a greater share of the burden as the code gets more progressive.

All categories of federal taxes, including income taxes on individuals and businesses, social insurance taxes, excise taxes, estate and gift taxes, customs duties and all other taxes, are tabulated and the total tax burden of each state is determined. This figure is compared to the flow of federal funds back to each state, bringing the two sides of federal fiscal operations together.

Here are the 10 biggest winners (who receive the most federal expenditures per dollar of federal taxes paid) and losers (who receive the least federal expenditures per dollar of federal taxes paid):

Rank	State	Expenditure Per Dollar of Taxes Paid
1	New Mexico	$2.00
2	Alaska	$1.87
3	West Virginia	$1.83
4	Mississippi	$1.77
5	North Dakota	$1.73
6	Alabama	$1.71
7	Virginia	$1.66
8	Hawaii	$1.60
9	Montana	$1.58
10	South Dakota	$1.49
	Median	$1.11
41	Colorado	$0.79
42	New York	$0.79
43	California	$0.79
44	Massachusetts	$0.77
45	Nevada	$0.73
46	Illinois	$0.73
47	Minnesota	$0.69
48	New Hampshire	$0.67
49	Connecticut	$0.66
50	New Jersey	$0.55

See also the Tax Foundation's News Release.

Shaviro Presents The Politics of Consumption Tax Reform Today at UCLA

Daniel N. Shaviro (NYU) presents Simplifying Assumptions: How Might the Politics of Consumption Tax Reform Affect (Impair) the End Product? at UCLA today as part of its Tax Policy and Public Finance Workshop Series, moderated by Eric Zolt & Victor Fleischer.  Here is the concluding paragraph:

“Tax simplification” is always an appealing slogan, in addition to being genuinely desirable. Once we get beyond slogans, however, simplification is a public good that few political actors value more than the opportunity to shift their own tax burdens to someone else. In our frequently corrupt political system, at once too responsive and not responsive enough, this greatly limits the actual tax simplification that one can ever realistically expect.

The colloquium takes place in Room 2448, UCLA Law School, 4:00 - 6:00 p.m. PST.

BNA Tax Management Advisory Board Meets Today on Estate & Gift Tax

The BNA Tax Management Advisory Board meets today at 5:30 pm (followed by a reception at 7:00 p.m.) at the Waldorf-Astoria Hotel in New York City to discuss three Estate & Gift Tax papers:

• Evaluating the Potential Success of a GRAT Against Competing Strategies to Transfer Wealth, by Jonathan G. Blattmachr (Milbank, Tweed, Hadley & McCloy, New York) & Diana S. C. Zeydel (Greenberg Traurig, Miami)
• Fiduciary Risk Management, by Richard M. Horwood (Horwood Marcus & Berk, Chicago)
• Private Annuity Sales and the Exhaustion Test, by Kevin McGrath (The Saylor Law Firm, Atlanta)

Vitaliano on Estimation of the Return on Capital in Municipal Water Systems

Donald F. Vitaliano (Rensselaer Polytechnic Institute, Department of Economics) has published Estimation of the Return on Capital in Municipal Water Systems, 58 Nat'l Tax J. 685 (Dec. 2005).  Here is the abstract:

Seventy–five small, municipal water systems are analyzed to determine if they employ the least–cost long–run capital stock, and if they minimize cost given the observed level of capital. The social cost of capital exceeds the estimated return on investment by more than four times, and actual production costs are 36 percent above minimum costs. Median capital stock inefficiency, due to overinvestment, is $70,500 per system, and median cost inefficiency is $24,300. Extrapolated to the seven thousand similar systems nationwide, the combined cost of these two types of inefficiency is $663.6 million per year.

LoPucki on IRS Tax Liens and UCC Article 9

Lynn M. LoPucki (UCLA) has posted The Spearing Tool Filing System Disaster on SSRN.  Here is the abstract:

Debtor name errors have been a substantial and persistent problem for filers and searchers in the UCC Article 9 filing system. Filers make errors in spelling, punctuation, and spacing, use trade names, and include extraneous words. The law prior to 2001 excused such errors if they were “minor” and “not seriously misleading.” That put the burden on searchers to conduct “reasonable diligent searches” to find erroneous filings. The effect was to render all searches problematic and costly.

The drafters of revised Article 9 conceived a brilliant solution to the problem with respect to corporate debtors (“registered entities”). First, they required filers to file in the exact, correct names of their debtors, forgiving only errors that would be caught by the filing office’s official search logic. That meant a searcher could conduct a single search in the exact, correct name of a debtor and be assured of finding every effective filing. To make exact, correct names easily available to filers and searchers, the drafters changed the place for filing against a corporate debtor to its state of incorporation. Because the same office would have both the Article 9 and corporate record for a debtor, filing officers could set up “point and shoot” systems in which filers and searchers selected their debtors from the list of all entities incorporated in the state rather than attempting to name them. Had point and shoot be implemented, filing or searching against the wrong debtor would have remained possible, but debtor name errors would have been eliminated completely.

The Sixth Circuit’s decision in Spearing Tool nullified the drafters’ efforts. The court held federal tax lien filings valid despite the IRS’s failure to comply with the exact, correct name requirement. Because nearly every searcher is concerned with tax lien filings and those filings are in the Article 9 filing system in nearly all states, the practical effect of the decision was to reinstate the “reasonable diligent search” requirement for Article 9 searching.

This essay applies systems analysis to demonstrate that the Spearing Tool decision imposes six kinds of costs on lenders while providing no significant benefit to the IRS: the costs of (1) name variation searches, (2) receiving and acting on notices of name variation, (3) purchasing insurance against search failures, (4) subordination of loans as a result of search failure, (5) litigating the reasonableness of search methods, and (6) professional advice on how to respond to Spearing Tool in specific circumstances.

Despite the increase in total system cost resulting from Spearing Tool, reversal of the decision is highly unlikely. The IRS can prevent relitigation of the issue until the operation of the system has adjusted to the point where the cost of reversal would be prohibitive.

Law Professor Comic Books

Opening up a new genre of legal scholarship, James Boyle (Duke), Jennifer Jenkins (Duke) & Keith Aoki (Oregon) have published a comic book, Bound by Law? Tales from the Public Domain.

From press reports:

Why a comic book? “We care about the subject and, for some strange reason, none of our intended audiences seemed eager to read scholarly law review articles,” Boyle said. “What’s more, there is something perverse about explaining a visual and frequently surreal reality in gray, lawyerly prose.”

The book will be launched on April 6 at Durham’s Full Frame Documentary Film Festival. An expanded version, with exclusive textual commentary from notable artists and culture critics, will be available in bookstores later this year, published by Soft Skull Press.

“Bound by Law? Tales from the Public Domain” is the first in a series of comic books planned by Duke Law School’s Center for the Study of the Public Domain. A grant from the Rockefeller Foundation funded the project, which is published under a Creative Commons license. The next comic in the series will deal with music and copyright.

(Hat Tip:  JD2B.)

What to Do If You Fall in Love with Your Research Assistant?

BlackProf offers advice here.

Law School Blogosphere: Law Profs 229, Law Students 225

Two interesting posts about the law school blogopshere:

1. Dan Solove at Concurring Opinions updated his Law Professor Blogger Census and reports that there are now 229 law professor bloggers at 100 law schools; 24.9% of the law professor bloggers are female and 75.1% are male. In our Law Professor Blogs Network, we have 41 law professor bloggers (17.9% of the total); 29.3% of our law professor bloggers are female and 70.7% are male; and 17.1% are persons of color.
2. A law student blogger at Michigan (Clever WoT) published a Law Student Blogger Directory and reports that there are now 225 law student bloggers at 52 law schools.  (Hat Tip:  Dan Sololve via 3L Epiphany.)

WSJ: 39% Don't Take Steps To Minimize Taxes

Interesting results from a Wall Street Journal/Harris Poll, reported in Many Americans Don't Take Steps To Minimize Income-Tax Liability, by Beckey Bright:

About two in five U.S. adults did nothing this year to minimize their U.S. income tax liability, a new Wall Street Journal Online/Harris Interactive personal finance poll shows. The online poll, which surveyed 1,954 U.S. adults who have filed or plan to file a tax return for 2005, found about 39% of those polled didn't or won't do anything to minimize their tax bill.

Among the interesting results:

"When filing your taxes this year did you/do you plan to...?"

• 91%: Filed/Plan to File Taxes This Year
  • 35%:  Utilize an accountant or tax service to prepare your taxes
  • 34%:  File them yourself using tax preparation software or an online tax preparation program
  • 12%:  File them yourself using hard copies of IRS forms
  • 8%:  Have a friend/family member file them for you
  • 3%:  Other
• 9%:  I Will Not File Taxes This Year

Of those who filed/plan to file this year:  "Which of the following did you do this past year or will you do when filing to minimize your tax liability?"

• 61%:  Plan To Do Something To Minimize Tax Liability
  • 42%:  I contributed to charities
  • 29%:  I deducted/plan to deduct state and local taxes
  • 21%:  I gave deductible monetary gifts
  • 19%:  I itemized/plan to itemize certain purchases as work expenses
  • 12%:  I itemized/plan to itemize travel or commuting as a work expense
  • 7%:  I purchased an IRA.
  • 5%:  I timed the sale of stocks or other assets to minimize my tax liability
  • 4%:  I filed/plan to file taxes separately, rather than with my spouse
  • 12%:  Other
• 39%:  I Did Not/Do Not Plan to Do Anything to Minimize My Tax Liability

Willens on IRS Introduces "New and Improved" A Reorganization

Robert Willens (Managing Director, Lehman Brothers, New York) has published IRS Introduces "New and Improved" A Reorganization, 110 Tax Notes 1235 (Mar. 13, 2006), also available on the Tax Analysts web site as Doc 2006-3596, 2006 TNT 49-35.  The article discusses the final regulations dealing with tax- free reorganizations under section 368(a)(1)(A).