Sunday, February 24, 2008
Interesting article in Inside Higher Ed: Measuring "Impact" of B-School Research, by Andy Guess:
[B]usiness schools expect their faculty to produce peer-reviewed research. The relevance, purpose and merit of that research has been debated almost since the institutions started appearing, and now a new report promises to add to the discussion — and possibly stir more debate. The Association to Advance Collegiate Schools of Business on Thursday released the final report of its Impact of Research Task Force, the result of feedback from almost 1,000 deans, directors and professors to a preliminary draft circulated in August.
The consensus report, which was approved by the group’s international board of directors, asserts that it is vital when accrediting institutions to assess the “impact” of faculty members’ research on actual practices in the business world. But it does not settle on concrete metrics for impact, leaving that discussion to a future implementation task force, and emphasizes that a “one size fits all” approach will not work in measuring the value of scholars’ work. ...
“In the past, there was a tendency I think to look at the [traditional academic] model as kind of the desired situation for all business schools, and what we’re saying here in this report is that there is not a one-size-fits-all model in this business; you should have impact and expectations dependent on the mission of the business school and the university,” said Richard Cosier, the dean of the Krannert School of Management at Purdue University and vice chair and chair-elect of AACSB’s board. ... That position worried some respondents to the initial draft, who feared an undue emphasis on immediate, visible impact of research on business practices — essentially, clear utilitarian value — over basic research. The final report takes pains to alleviate those concerns, reassuring deans and scholars that it wasn’t minimizing the contributions of theoretical work or requiring that all professors at a particular school demonstrate “impact” for the institution to be accredited. ...
But some critics have worried that the report could encourage a focus on the immediate impact of research at the expense of theoretical work that could potentially have an unexpected payoff in the future.
- Accountant Sues Lenny Dykstra for $100k for Preparing His 2006 Tax Returns
- 2Ls Now Must Respond to Summer Job Offers Within 45 Days
- Saxer on Religious Accessory Uses and Land Use Regulation
- Loebl on The Section 67 Question: Are Fees For Investment Advice Fully or Partially Deductible By Trusts?
- Preferential Tax Regimes with Asymmetric Countries
- Clinton, McCain Refuse to Follow Obama's Lead in Releasing Tax Returns
- Law Prof Blog Ranking by Citation by Courts
- Top 5 Tax Paper Downloads
- IRS Explains How People Who Do Not Pay Income Tax Can Get Economic Stimulus Payments
- Wesley Snipes Redux: Brother of Former Philadelphia Mayor Found Guilty of Only 3 of 9 Charges
- Pogue on The Gross Receipts Tax: A New Approach to Business Taxation?
Hillary Clinton and John McCain continue to resist calls to release copies of their tax returns, as Barack Obama did last April (blogged here). Although both Clinton and McCain pledge to follow the traditional practice of releasing their tax returns if they become the nominee of their party, the press is putting pressure on them to follow Obama's lead in disclosing the returns so primary voters can get a fuller picture of their finances before casting their ballots:
- Associated Press:
- Huffington Post:
- Release Those Tax returns and Donor Lists, by Harold Pollack
- Why Won't Hillary Clinton Release Her Tax Returns?, by Adam Hanft
- New York Post: What Are the Clintons Hiding?
- New York Times: Show us the Money (editorial)
- Wall Street Journal:
- Washington Post: Obama Camp to Clinton: Show Us Your Taxes, by Matthew Mosk
Following up on recent posts on Law Prof Blog Rankings (here, here and here): J. Robert Brown, Jr. (Denver) has ranked the Top 10 Law Prof Blogs by citation by courts. Our sister Sentencing Law and Policy blog has an amazing 28 of the 37 total court citations of Law Prof Blogs.
There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #5:
1. [232 Downloads] Taxation of US Tax-Exempt Entities' Offshore Hedge Fund Investments -- Application of the Section 514 Debt-Financed Rules to Leveraged Hedge Funds and Derivatives and the Case for Equalization, by Summer Ayers LePree (Holland & Knight, Miami) [blogged here]
2. [211 Downloads] Income Effectively Connected with U.S. Trade or Business: A Survey and Appraisal, by Lawrence Lokken (Florida) [blogged here]
4. [124 Downloads] Financial and Tax Accounting: Transparency and "Truth," by Judith Freedman (Oxford University) [blogged here]
The IRS on Friday released an advance copy of Notice 2008-28, 2008-10 I.R.B. ___ (3/10/08), which provides guidance on how individuals who are not otherwise required to file an income tax return for 2007 can request the economic stimulus payment authorized by H.R. 5140, the Economic Stimulus Act of 2008:
Many individuals with low earned income or other qualifying income (e.g., social security benefits, Tier 1 railroad retirement benefits, and certain disability or survivor benefits from the Department of Veterans Affairs) may not be required by § 6012(a) to file an income tax return and may not file an income tax return to receive a refund of withheld taxes. This notice informs these individuals of the minimum filing necessary to obtain the economic stimulus payment in 2008. ...
In the case of an eligible individual (or married couple filing jointly) who is not required by § 6012(a) or § 6017 to file an income tax return, but who had qualifying income in 2007 that equals or exceeds $3,000, the Service will treat a Form 1040A prepared in the following manner as a valid claim for refund in the amount of the 2008 economic stimulus payment:
Another defendant was partially acquitted in a high-profile tax fraud case: AP and Philadelphia Inquirer report that T. Milton Street Sr., brother of former Philadelphia mayor John F. Street (2000-2008), was found guilty of failing to file income tax returns for 2002-2004 but was acquitted of mail fraud, wire fraud (two counts), and wire services fraud; the jury deadlocked over two counts of assisting in the filing of false tax returns:
[P]rosecutors charged that Street did not report $2 million in income between 2000 and 2004, most of it from the airport maintenance contract. Street admitted on the stand that he did not file tax returns for 2002, 2003 and 2004, claiming the federal income tax was unconstitutional. The jury did not accept that argument, which the Supreme Court has ruled is no defense no matter how sincere the belief.
The government was again sent the message to stick to tax charges. ... As previously discussed here, this case has similarities with the prosecution against Wesley Snipes in that both were charged and acquitted of substantive charges beyond the failure to file taxes. In both cases, the individuals accused of crimes were only found guilty of misdemeanor tax offenses for some of the years in question. And in both cases the jury did not immediately reach a verdict.
Saturday, February 23, 2008
Thomas F. Pogue (University of Iowa, Department of Economics) has published The Gross Receipts Tax: A New Approach to Business Taxation?, 60 Nat'l Tax J. 799 (2007). Here is the abstract:
Despite their well–understood shortcomings, gross–receipts–based taxes (GRTs) have been recently enacted or considered in a number of states, reflecting a perceived need for an alternative approach to business taxation. To determine how well a GRT meets this need, this paper addresses several questions. What principles should guide choice among taxes collected from businesses? How does the GRT stack up not only against these principles, but also against existing and other feasible taxes? How do the newly enacted GRTs compare to the taxes they replace? Are there betterreplacement taxes than the GRT? The conclusion: GRTs are at best second–best.
Did they actually think I would pay that much for a tax return? That's insane. ... I looked at [the bill]. I laughed. Somebody trying to charge $120,000 for a tax return and can't even file it on time, they've got some problem. Now they're going to get exposed. My attorney [Daniel Petrocelli], he said he thought it was a typo when he saw the bill.
The lawsuit claims that the $111,097 bill "is fair and reasonable and is in accordance with the terms and provisions of the [February 2007] retainer agreement." See New York Daily News coverage here and here. (Hat Tip: Jim Maule.)
NALP has announced a one-year trial rule beginning Fall 2008 to require 2Ls to respond within 45 days to a law firm's summer job offer (or December 30, whichever comes first). If the student does not respond within 45 days, the offer will lapse. (The old guidelines allowed students to hold on to five offers until Oct. 15; four offers until Nov. 1; and three offers until Dec. 1; and one offer thereafter.)
- NALP Press Release
- NALP Standard
- NALP Discussion Paper
- NALP Memorandum
- ABA Journal
- National Law Journal
Shelley Ross Saxer (Pepperdine) has posted Faith in Action: Religious Accessory Uses and Land Use Regulation, 2008 Utah L. Rev. ___, on SSRN. Here is the abstract:
This article details the application of constitutional, land use and tax law principles to non-religious facilities and activities, within religious institutions, considered accessories or auxiliaries to the institutions' principal religious function. To qualify them as accessory uses, the religious institution must establish that these non-religious/secular uses are necessary to the religious exercise of the institution's members and guests. The article compares the tests for accessory uses applied in land use cases interpreting the Religious Land Use and Institutionalized Persons Act (RLUIPA), with the test for auxiliary uses employed by cases determining the tax exempt status of certain religious organizations.
Loebl on The Section 67 Question: Are Fees For Investment Advice Fully or Partially Deductible By Trusts?
James F. Loebl (Valparaiso) has published The Section 67 Question: Are Fees For Investment Advice Fully or Partially Deductible By Trusts?, 56 Drake L. Rev. 17 (2007). Here is the abstract:
One of the more controversial questions in tax law in recent memory is whether a trust may fully deduct the fees it pays for investment advice or whether it must treat the fees as miscellaneous itemized deductions that are allowed only to the extent that the total of such deductions exceeds 2% of the trust's adjusted gross income. While the Sixth Circuit held in the trust's favor that such fees are fully deductible under § 67(e)(1) of the Internal Revenue Code, the Federal, Fourth and Second Circuits subsequently agreed with the Government that such costs were miscellaneous itemized deductions subject to the 2% floor under § 67(a). As result, the United States Supreme Court has granted the petition for certiorari in the Second Circuit case and will resolve the issue during the Court's 2007-08 Term.
Friday, February 22, 2008
Sam Bucovetsky (York University, Department of Economics) & Andreas Haufler (University of Munich, Department of Economics) have published Preferential Tax Regimes with Asymmetric Countries, 60 Nat'l Tax J. 789 (2007). Here is the abstract:
Current policy initiatives taken by the EU and the OECD aim at abolishing preferential corporate tax regimes. This note extends Keen’s (2001) analysis of symmetric capital tax competition under preferential (or discriminatory) and non–discriminatory tax regimes to allow for countries of different size. Even though size asymmetries imply a redistribution of tax revenue from the larger to the smaller country, a non–discrimination policy is found to have similar effects as in the symmetric model: it lowers the average rate of capital taxation and thus makes tax competition more aggressive in both the large and the small country.
Last October, I blogged the University of San Diego School of Law's appointment of Tax Court Judge David Laro as Director of its Graduate Tax Program, effective in 2008. USD has announced that proposed federal legislation has caused Judge Laro to postpone the commencement of his duties:
“Recent congressional activity regarding retirement provisions of Federal Judges has required me to postpone the commencement of my role as Tax Director of the University of San Diego School of Law’s Graduate Tax Program. I am hopeful that Congress will act soon on pending legislation affecting Federal Judges and that the outcome of this activity will be compatible with the needs of USD and other law schools around the country. I have always enjoyed teaching at USD alongside its dedicated and talented tax faculty and supportive administration.”
“For nearly a decade, Judge Laro has taught various tax courses for USD’s tax program and will continue to do so as a member of the visiting faculty,” said University of San Diego School of Law Dean Kevin Cole. “We are hopeful that the pending legislation will conclude soon in a way that will permit him to assume the directorship role.”
The Code of Conduct for United States Judges rightly encourages judges to "write, lecture, teach, and participate in other activities concerning the law, the legal system, and the administration of justice." It is unfortunate that the proposed pension changes are keeping a distinguished judge like David Laro from leading one of the country's premier graduate tax programs and lending his considerable talents to the education of the next generation of tax lawyers.
Most of the commentary on the proposed legislation focuses on the judicial pay and travel aspects, and not on the retirement changes -- see examples below the fold. A couple of pieces provide limited discussion of the pension issues:
- Legal Times: "The bill would tax retired judges who are collecting a federal pension while earning large salaries in private jobs. ... For every $2 they made over their salary as a federal judge, $1 would be cut from their pension. The bill would also increase senior judges' workload from three months a year to four months a year and require 17 years of service before a judge could retire with a full pension."
- Government Executive: "Like the House bill, the Senate measure also changes the pension schedule for federal judges, requiring that they have a combination of age and service amounting to 84 years in order to earn a full pension -- which is equal to their full pay at the time of retirement."
Here are the results of the Federal Bar Association Section of Taxation 2008 Writing Competition:
- First Place: Andrew C. Strelka (American), Tax Free Profit for Federal Contractors: A Law Student Discovers a Loophole
- Second Place: Angel Peterson (Quinnipiac), Closing the Gap – Creating Big Problems for Little Businesses
John E. Anderson (University of Nebraska, Department of Economics), Jeffrey Clemens (Harvard University, Department of Economics) & Andrew Hanson (Syracuse University, Department of Economics) have published Capping the Mortgage Interest Deduction, 60 Nat'l Tax J. 769 (2007). Here is the abstract:
In this paper we examine the economic implications of several policy options for capping the mortgage interest deduction (MID). We extend the standard user–cost model of owner–occupied housing to include a cap on the mortgage size receiving tax–favored status. Our user–cost estimates for taxpayers with mortgages above the current–law cap are 4.41 percent higher than estimates from a model without the cap. We simulate the share of mortgage dollars that would be subject to three alternative cap policy variants and summarize the distributional impacts of each proposal, computing the share of mortgage dollars impacted across U.S. Metropolitan Areas.
Interesting op-ed in today's New York Times: Go on a Spending Spree, by Dalton Conley:
Congress has passed and President Bush has signed legislation to rescue the economy from the jaws of recession. The $168 billion package, which includes an effort to increase consumer spending by distributing $600 rebates to individuals, can be faulted in many ways: with two wars and a budget deficit the nation can’t really afford it; it will probably arrive too late in the business cycle to actually make a difference; and the near-universal aspect of the rebates doesn’t make much sense. But the most fundamentally troubling thing is the premise that while consumer overspending got us into this mess, more will get us out of it. This is akin to the old saw about curing a hangover with the hair of the dog that bit you.
What if instead of giving rebates we helped create an investor society by seeding universal investment accounts? This would not only pump cash into the economy, through the slightly more indirect route of investment, it would also help us correct some of the near-fatal flaws in our long-term economic landscape.
Following up on recent posts on Law Prof Blog Rankings (here and here): J. Robert Brown, Jr. (Denver) has ranked the Top 20 Law Prof Blogs by citation in law reviews. TaxProf Blog is #14 with 25 citations in law reviews (tied with InstaPundit).
The Third Circuit’s opinion in Swallows Holding is an important one in the ongoing disagreement over the appropriate standard for judicial review of Treasury regulations promulgated pursuant to general authority under I.R.C. § 7805. The Tax Court’s majority and dissenting opinions neatly reflected the scholarly debate over whether the tax-specific judicial deference standard articulated in National Muffler or the more general Chevron deference standard applies to general authority Treasury regulations. Contrary to the Tax Court’s majority, but correctly in my view, the Swallows Holding decision clearly holds that Chevron rather than National Muffler provides the appropriate evaluative standard. The Third Circuit thus continues a post-Mead trend in the circuit courts of rejecting tax exceptionalism in judicial deference toward Treasury regulations. Yet the opinion is also interesting for the questions it leaves unresolved.
The IRS has released IR-2008-22, which explains the two business incentives in the Economic Stimulus Act of 2008: (1) the 50% depreciation allowance for 2008 purchases, and (2) the increase in the § 179 small business expensing limitation to $250,000 (from $128,000) for tax years beginning in 2008.
In Countryside Limited Partnership v. Commissioner, T.C. Memo 2008-3, the government challenged a purportedly tax-free distribution of nonmarketable securities to partners who wished to withdraw from a real estate partnership shortly before sale of the partnership's depreciated real property. By manipulating the partnership basis adjustment provisions, the Countryside transaction sought to shift and duplicate basis, while potentially deferring indefinitely the withdrawing partners' gain from the real property. Surprisingly, without addressing the larger Countryside transaction, The Tax Court held that the withdrawing partners recognized no gain on the deemed distribution of securities; in granting partial summary judgment on the issue of gain recognition under I.R.C. § 731, the court found that the transaction was imbued with economic substance and was not inconsistent with the intent of Subchapter K.
This article discusses the transaction in a manner that is (hopefully) accessible to readers who are not steeped in Subchapter K. It suggests several alternative ways in which the transaction could be recharacterized to clearly reflect income under traditional judicial doctrines and, specifically, the partnership anti-abuse rule. Unfortunately, the Tax Court failed to send a clear message that such transactions do not work, thereby undermining the effectiveness of the partnership anti-abuse rule. The article suggests that the Countryside decision facilitates massive avoidance of the statutory 25% rate on gain from depreciated real property, and proposes that Congress amend the partnership distribution rules to prevent shifting of basis from capital assets to depreciable real property.
Thursday, February 21, 2008
This CBO paper, which was prepared at the request of the Ranking Member of the Senate Budget Committee, examines the arguments for and against the state and local tax deduction; how the benefits from the deduction are distributed among different groups of taxpayers and different governments; how the deduction and the AMT interact; and how modifying or eliminating the deduction would affect the federal budget, the finances of state and local governments, and federal taxpayers. In accordance with CBO’s mandate to provide objective, impartial analysis, the paper makes no recommendations.
Kerry A. Ryan (St. Louis) has published Access Assured: Restoring Progressivity in the Tax and Spending Programs for Higher Education, 38 Seton Hall L. Rev. 1 (2008). Here is the abstract:
Presently, the federal government subsidizes the higher education expenses of individual college students through two distribution channels: the tax system and the transfer system. Under each subsystem, there are a multitude of programs available to assist students in meeting their postsecondary educational expenses. The proliferation of so many forms of federal student aid raises issues of intra- and inter-program effectiveness. In their current form, the tax benefits for higher education do not get the right amount to the right people at the right time. The federal college spending programs, on the other hand, get the right amount to the right people but do so in the wrong manner. The intersection of these two financial aid distribution channels amplifies their individual deficiencies. The resulting complex web of overlapping, contradictory, and partially or completely uncoordinated tax and spending programs impedes the government's ability to achieve its public policy goal in providing federal student aid, namely, to expand access to college for low income students for whom cost remains a barrier. This Article argues that significant equity, efficiency, and simplicity gains can be realized by consolidating substantially similar college tax programs and by increasing their coordination with traditional, transfer-based forms of student financial assistance.
The ruling holds that compensation paid to an executive is not qualified performance-based compensation for purposes of § 162(m), even if the compensation is paid upon the attainment of the performance goal, if the plan agreement or contract provides for payment of compensation to an executive upon the attainment of a performance goal or for (1) termination without “cause“ or for “good reason” or (2) voluntary retirement.
Although Rev. Rul. 2008-13 thus reaffrims the analysis in PLR 200804004, the new rule only applies prospectively.
Interesting article in U.S. News & World Report: Does Obama Want a Trillion-Dollar Global Tax?, by James Pethokoukis:
Back in December, Obama sponsored the "Global Poverty Act," a bill that proposed the following:
To require the President to develop and implement a comprehensive strategy to further the United States foreign policy objective of promoting the reduction of global poverty, the elimination of extreme global poverty, and the achievement of the [U.N.] Millennium Development Goal of reducing by one-half the proportion of people worldwide, between 1990 and 2015, who live on less than $1 per day.
What this bill would do, in short, is commit the United States to the U.N. declared goal that industrialized countries should spend 0.7 percent a year of their gross domestic product on foreign aid. Over the next decade or so, that would work out to around $850 billion. ...
How to pay for our penance? Economist Jeffrey Sachs, an advocate of this idea, has a suggestion:
We will need, in the end, to put real resources in support of our hopes. A global tax on carbon-emitting fossil fuels might be the way to begin. Even a very small tax, less than that which is needed to correct humanity's climate-deforming overuse of fossil fuels, would finance a greatly enhanced supply of global public goods.
So not only does Obama want to raise taxes on Americans making over $250,000 a year and eliminate the $102,000 wage cap on Social Security taxes, he perhaps wants to tack on another trillion dollars in taxes to pay for dramatically increased foreign aid.
Rosenzweig Presents Taxation, Risk and Derivatives: Does an Income Tax Subsidize Hedge Funds? Today at Northwestern
Adam Rosenzweig (Washington University) presents Taxation, Risk and Derivatives: Does an Income Tax Subsidize Hedge Funds? at Northwestern today as part of its Advanced Topics in Taxation Series organized by Charlotte Crane. Here is the Conclusion:
This article has begun the process of incorporating the lessons of the income taxation and risk literature into the analysis of the income taxation of financial derivatives, and primarily the use of financial derivatives by hedge funds. By looking solely at the income taxation of derivatives traded on a liquid market through this lens, some remarkable conclusions arise. Assuming a closed model with a single tax rate, full loss offsets, mark-to-market, no transaction costs and rational actors, the analysis demonstrates that the imposition of an income tax results in the government bearing speculative default risk with no offsetting market mechanism available to permit the government to offset this risk. As a result, the government effectively subsidizes the liquidity provider function of hedge funds through the imposition of the income tax; this occurs solely as a function of the role of liquidity providers as speculators and the risk allocation mechanisms of the liquid derivative markets, and not due to any asymmetric tax treatment of derivatives.
Brian Galle (Florida State) presents Tax Fairness at NYU today as part of its Colloquium Series on Tax Policy and Public Finance. Here is the abstract:
This Article argues that, contrary to the consensus of economists and many legal scholars, the norm of “horizontal equity” in taxation has independent meaning as a default rule in favor of existing arrangements. Although it has long been said, and widely thought, that tax should be fair in its dealings with individuals who are situated similarly to one another, no one has been able to say convincingly just what that fairness comprises. As a result, the learned referees in the last major dispute over the significance of horizontal equity judged that fairness’s critic had decidedly won the day. Since then, there have been ever more critics, but no cogent, comprehensive defense.
Seth H. Giertz (Tax Analysis Division, Congressional Budget Office) has published The Elasticity of Taxable Income over the 1980s and 1990s, 60 Nat'l Tax J. 743 (2007). Here is the abstract:
Taxable (and broad) income elasticities are estimated using tax return data from 1979 to 2001. Data from the Continuous Work History Survey (CWHS) yield an estimated taxable income elasticity for the 1990s that is about half the corresponding 1980s estimate. Estimates from the full Statistics of Income, which heavily oversamples high–income filers, generally confirm the CWHS results. More sophisticated income control brings the estimates for the two decades closer together—to 0.40 for the 1980s and 0.26 for the 1990s. Work by Kopczuk (2005) implies that the narrowing of the tax base since 1986 could account for 14 to 29 percent of the remaining difference.
Following up on Tuesday's post on Law Prof Blog Rankings, which lists the Top 30 Law Prof Blogs by traffic over the past twelve months (by both visitors and page views): J. Robert Brown, Jr. (Denver) has posted Of Empires, Independents, and Captives: Law Blogging, Law Scholarship, and Law School Rankings on SSRN. Here is the abstract:
Law faculty blogs have been around for much of the new millennium. This article examines these blogs, including their role in the legal scholarship continuum and their growing influence of legal community.
The paper begins with an evolutionary study, noting that law blogging originally began in a state of nature, with few rules governing frequency or content of posts. Increased competition and the emergence of Empire and Captive law blogs, however, has resulted in a growing sense of order on the legal blogosphere.
Perhaps as a result, the influence of law blogs has increased. The paper relies on a list of approximately 130 law faculty blogs and studies the frequency of law review and case citations. The numbers have been undergoing significant growth. The growth is particularly noteworthy given the difficulty in searching for material posted on the Internet.
The paper also studies the impact of law blogging on rankings in the US News. In the short term, blogging can disproportionately benefit law schools and faculty outside the top tier. Blogs can enhance the reputation of the sponsoring faculty member, enable them to route around the biases inherent in the system of law review placements and SSRN downloads, permit a level of participation in the legal debate that might otherwise not be available, and facilitate the dissemination of information important to alumni and other constituencies. Most critically, however, they represent a cost effective mechanism for improving a law school's reputational rankings and, perforce, its overall rankings in the infamous US News and World Report.
Much of the data used in the paper is derived from a list of 130 law faculty blogs, something paired down to the top 50 law faculty blogs. The top 50 was determined based upon a number of ranking metrics. These lists are included as an Appendix to this article.
Jay has begun a series of posts on his Race to the Bottom blog on Law Faculty Blogs and Rankings and promises to release "a list of the top 50 law faculty blogs next week using a variety of metrics that, in addition to traffic, attempt to assess influence. Thus, the ranking takes into account the number of law review and court citations." I have been following Jay's work with great interest and will share his results here.
Mark J. Cowan (Boise State University, College of Business and Economics) has posted Taxing and Regulating College and University Endowment Income: The Literature's Perspective on SSRN. Here is the abstract:
College and university endowments have reported outstanding investment returns in recent years. While annual investment returns have averaged around 15.2%, colleges and universities have only been spending about 4.6% of their endowment assets each year. This has drawn the attention of the Senate Committee on Finance, which recently held a hearing regarding the accumulation of endowment income at colleges and universities and debated whether endowments should be taxed or regulated (for example, by the use of the minimum distribution requirement that applies to private foundations). This Article marshals and fuses the existing literature on endowments, the rationales for tax exemptions, the justifications for the unrelated business income tax, and the reasoning behind the private foundation minimum distribution requirements to determine whether a tax on endowment income or a minimum distribution requirement would be consistent with our current understanding of how colleges and universities should be taxed. The Article concludes that the existing literature would not justify taxing or regulating endowment accumulation and that any attempt to tax or regulate endowments should only be undertaken in light of a fundamental re-imagining of our tax exempt system.
Interesting article in the Wall Street Journal: A Modern Conundrum: When Work's Invisible, So Are Its Satisfactions, by Jared Sandberg:
"Not only is work harder to measure but it's also harder to define success," says Homa Bahrami, a senior lecturer in Organizational Behavior and Industrial Relations at UC Berkeley's Haas School of Business. "The work is intangible or invisible, and a lot of work gets done in teams so it's difficult to pinpoint individual productivity." ...
At closing time, work doesn't seem completed, just temporarily abandoned. As much as he loves his job, insurance broker Ryan Bowles envies Fred Flintstone's exit from work in the quarry at day's end. "He seems so happy sliding down that dinosaur's tail when the whistle-bird blows," he says.
John E. Roemer (Yale University, Department of Political Science) has posted A Positive Theory of Income Taxation Where Politicians Focus Upon Swing and Core Voters on SSRN. Here is the abstract:
We construct an equilibrium model of party competition, in which parties are especially concerned with their core and swing voters, concerns which American political scientists have focused upon in their attempts to understand party behavior in general elections.
Parties compete on a large policy space of possible income-tax policies. An element in this infinite-dimensional space is a function which maps pre-fisc income into post-fisc income. The only restrictions are that the function be continuous, and satisfy exogenously specified upper and lower bounds on its derivative, where it is differentiable. Only a fraction of each voter type will vote for each party, perhaps because of issues not modeled here or voter misperceptions of policies. Each party's policy makers comprise two factions, one concerned with maximizing the welfare of its constituency, or its core, the other with winning over swing voters. An equilibrium is a pair of parties (endogenously determined), and a pair of policies, one for each party, in which neither party can deviate to another policy which will be assented to by both its core and swing factions. Formally, this is a Nash equilibrium where each party possesses only a quasi-order over the policy space. We fully characterize the equilibria. There are many. In a specially important case, each party proposes a piece-wise linear tax schedule, and these schedules coincide for a possibly large interval of middle-income voters, while the 'left' party gives more to the poor and the 'right' party more to the rich.
An empirical section uses the data of Piketty and Saez on taxation in the US during the twentieth century to assess the model's predictions. We argue that the model is roughly confirmed.
Interesting article on Bloomberg: Government Mounting Crackdown on "Tax Deniers"
The U.S. Justice Department, on the heels of a split verdict in its tax evasion prosecution of actor Wesley Snipes, is planning a crackdown on the so-called tax protester movement.
The protesters, or tax deniers, assert a constitutional right to avoid federal taxes, relying in part on century-old Supreme Court decisions. Their ranks are growing to include white-collar professionals, and they are costing the government millions of dollars in revenue, officials say. "Too many people succumb to the fallacy, the illusion, that you don't have to pay any tax under any set of conditions," said Assistant Attorney General Nathan Hochman, the new head of the Justice Department's tax division. "That is a growing problem."
The movement has been given a boost by the faltering economy and politicians' vilification of the IRS. The Snipes verdict may also have helped. ...
"Any kooky tax protester can put up their theories," said Jonathan R. Siegel, a professor at George Washington University's law school who has a Web site that debunks tax denier arguments.
See also Philadelphia Inquirer: Street's Position on Taxes Rejected Often by Courts:
In arguing that federal income taxes are unconstitutional, T. Milton Street Sr. is far from alone - but when it comes to the law, he has gone way out on a very weak limb. Time and time again, courts have ruled that while it is perfectly legal to believe that income taxes are unconstitutional, that is no defense for not paying them. ...
Protesters come in two varieties.
The first, known as resisters, recognize the government's right to collect income tax, but withhold payment on moral grounds, such as opposition to war or other government actions.
The second, to which Street claims to be an adherent, questions the legal foundation of income tax. The former Pennsylvania state senator is now on trial in federal court on charges of wire and mail fraud and tax offenses, including not filing returns and failing to pay income tax on more than $2 million in income. Besides claiming that the 16th Amendment is unconstitutional or was improperly ratified, tax foes have argued that wages are not income, that gold is the only money, and that filing tax returns violates the privilege against self-incrimination. In his own tax case, Street, the older brother of former Mayor John F. Street, on Thursday cited the "missing OMB control number." Basically, this discredited theory holds that because some IRS forms and instruction booklets do not carry a control number from the federal Office of Management and Budget as required by the Paperwork Reduction Act, a citizen may ignore the rule that requires filing a federal tax return.
Update: Ellen Podgor has more here.
Wednesday, February 20, 2008
Actor Nicolas Cage Faces Off With IRS, Files Tax Court Petition Over Disallowed $3.3 Million Deduction for Personal Expenses
Actor Nicolas Cage has filed a Tax Court petition (No. 934-08) contesting the IRS's determination that he personally owes $814,000, and his Saturn Productions of Los Angeles company owes $988,000, in taxes, interest, and penalties for 2002-2004. From Forbes:
The IRS says movie star Nicolas Cage used a company he owns to wrongly write off $3.3 million in personal expenses, including limos, meals, gifts, travel and his Gulfstream 1159A turbojet. ... The feds hit Cage both ways, denying Saturn a deduction for the disputed expenses while taxing Cage individually on the perks as salary and "constructive dividends."
Cage's business manager, Samuel J. Levin, says in an e-mail that the expenses were proper as "customary in the entertainment industry" and were partly based on the actor's "security needs."
As a professional educator and nonpartisan policy expert, I will seek practical solutions to problems and bring Philadelphia the quality of representation that its people deserve. ...
Livingston added that his own legislative priorities would include tax and education reform, increased veteran’s benefits, and improved constituent services.
Distributive justice scholars generally tell one of two stories about philanthropy. One is that much giving benefits the middle- and upper-class (think of gifts to the opera). Because little redistribution results, they argue, such gifts don’t merit a charitable deduction and the deduction should be limited to groups helping the poor. Another account is that any charitable deduction violates taxpayers’ rights by forcing them to subsidize projects other than the pure public goods necessary to ensure a functioning marketplace (such as courts). While appealing in their simplicity, these descriptions are unfulfilling. This Article will provide a more nuanced account of the interaction between distributive justice and charity.
Leandra Lederman (Indiana) presents Tax Appeal: A Proposal to Make the U.S. Tax Court More Judicial, 86 Wash. U. L. Rev. ___ (2008), at Michigan today as part of its Tax Policy Workshop Series. Here is the abstract:
Accountability is a critically important protection for any justice system; its absence provides an opportunity for shortcuts that may undermine procedural fairness or even change case outcomes. Yet, the U.S. Tax Court, which is an Article I court, is not subject to the Administrative Office of U.S. Courts or the U.S. Judicial Conference -- institutions that serve and oversee the federal judiciary. In addition, because the Tax Court is not an administrative agency, it is not covered by the Administrative Procedure Act or the Freedom of Information Act.
Recently, patents for tax strategies have drawn attention from Congress, tax policymakers, the press and tax practitioners. The phenomenon of tax strategy patents worries many tax practitioners as a matter of both policy and practice. This article reviews four categories of concerns - patent policy, the nature of our tax system, tax policy, and the impact on the tax profession. It then considers four possible kinds of responses - prohibiting patents on tax strategies, granting immunity for infringements of tax strategy patents, reforming the patent process, and relying on changes to the tax law - such concerns suggest. In the course of this review, it compares proposals regarding tax strategy patents to the current prohibition on patents for atomic energy and nuclear energy and to the special immunity afforded physicians for infringement of medical procedure patents. It also considers whether granting tax strategy patents special treatment would raises questions under TRIPs. Finally, it discusses the trade-off that tax practitioners will face in seeking legislative or administrative action regarding tax strategy patents. To gain any kind of special treatment for tax strategy patents under the patent system, it concludes, tax professionals will have to show Congress how tax practice differs from other endeavors and why special treatment would not violate obligations under TRIPs.
Gary A, Wagner & Erick M. Elder (both of University of Arkansas-Little Rock, Department of Economics & Finance) have published Revenue Cycles and the Distribution of Shortfalls in U.S. States: Implications for an "Optimal" Rainy Day Fund, 60 Nat'l Tax J. 727 (2007). Here is the abstract:
Slowdowns in economic activity often leave state policymakers facing severe budget shortfalls and the prospects of reducing services. In this paper we apply a Markov switching regression to monthly state–level data to model the distribution of expansions and contractions. This allows us not only to construct distributions of the revenue shortfalls states are likely to confront during recessions, but also to construct savings rate rules that depend on the uncertain duration in both expansions and contractions. Our results have important implications for policymakers who may wish to smooth cyclical fluctuations in the budget via a rainy day fund.
The Council for Aid to Education reports in its annual Voluntary Support of Education Survey that private giving to colleges grew by 6.3% in 2007 to a record $29.5 billion. The rich continue to get richer, with the Top 20 colleges raising 25.8% of the private donations to higher education:
- Stanford $832,344,826
- Harvard $613,985,000
- USC $469,646,622
- Johns Hopkins $430,455,336
- Columbia $423,849,107
- Cornell $406,925,075
- Pennsylvania $392,420,770
- Yale $391,315,420
- Duke $372,328,154
- UCLA $364,779,738
- MIT $329,158,304
- Chicago $328,328,020
- Wisconsin $325,336,779
- University of Washington $300,199,601
- Michigan $293,403,123
- Minnesota $288,750,059
- NYU $287,587,458
- Virginia $282,610,619
- Indiana $278,553,274
- University of California at San Francisco $251,945,342
Here is the full list of giving to colleges, arranged by state. Among the trends noted in the study are:
- Alumni giving declined by 1.5%
- Gifts from foundations increased by 19.7%, to $8.5-billion
- The percentage of contributing alumni decline from 11.9% to 11.7%
On behalf of LexisNexis and the Graduate Tax Series Board of Editors (Ellen Aprill (Loyola-L.A.), Elliott Manning (Miami), Philip Postlewaite (Northwestern) & David Richardson (Florida)), I am delighted to announced the publication of the second edition of Partnership Taxation, by Richard Lipton (Baker & McKenzie, Chicago), Paul Carman (Chapman & Cutler, Chicago), Charles Fassler (Greenebaum, Doll & McDonald, Louisville) & Walter Schwidetzky (University of Baltimore School of Law).
The Graduate Tax Series is the first series of course materials designed for use in tax LL.M. programs. Like all books in the Series, Partnership Taxation was designed from the ground-up with the needs of graduate tax faculty and students in mind:
- More focus on Internal Revenue Code and regulations, less on case law
- Analysis of complex, practice-oriented problems of increasing sophistication
- Teacher’s manual with solutions to problems and other guidance
- On-line access to the comprehensive and current Code and regulations, designed to complement the book
Four other books in the Series also are available for adoption now:
- Civil Tax Procedure (2d ed. 2007), by David Richardson (Florida), Jerome Borison (Denver), and Steve Johnson (UNLV).
- Employee Benefits Law: Qualification Rules and ERISA Requirements (2006), by Kathryn Kennedy (John Marshall) & Paul Shultz (Director, Employee Plans Rulings & Agreement, IRS)
- Federal Tax Accounting (2006), by Michael Lang (Chapman), Elliot Manning (Miami) & Steven Willis (Florida)
- U.S. International Taxation (2008), by Allison Christians (Wisconsin), Samuel Donaldson (Washington) & Philip Postlewaite (Northwestern)
Other forthcoming books in the Series are:
- Bankruptcy Taxation, by Frances Hill (Miami) & William Lyons (Nebraska)
- Federal Corporate Income Taxation, by Charlotte Crane (Northwestern) & Linda Beale (Wayne State)
- Federal Taxation of Property Transactions, by Elliott Manning (Miami) & David Cameron (Northwestern)
- Tax Crimes and Tax Fraud, by Steve Johnson (UNLV), Scott Schumacher (Washington), Larry Campagna (Chamberlain & Hrdicka, Houston) & John Townsend (Townsend & Jones, Houston)
- Tax Practice Ethics, by Linda Galler (Hofstra) & Michael Lang (Chapman)
- For more details about the Graduate Tax Series, see here
- Click on these links to purchase a copy of Civil Tax Procedure, Employee Benefits Law, Federal Tax Accounting, and Partnership Taxation. Faculty can request a complimentary review copy by emailing here (in the body of your email, note the title of the book you are requesting and your contact information).
- Email me if you would like more information about the Series or if you would like to submit a book proposal.
Interesting piece in Inside Higher Ed:
Let’s consider two recent, related pieces in the University of Miami newspaper.
The first announces the appearance, in selected classrooms, of a new technology called Synchroneyes. ... Synchroneyes marks a major escalation in the classroom technology battle: The professor as spy-master. With Syncroneyes, the professor can "view all the computer screens in the classroom and redirect the student’s attention if they digress from the lecture topic." ... "The professor is also able to control access,” the Miami article continues, “to the Internet or to specific computer applications by blocking students individually or as a group.” ...
The Miami editorial board, in the second piece, notes that the university is indeed considering an eventual across-the-board laptop ban in classrooms.
Scott D. Michel (Caplin & Drysdale, Washington, D.C.) & Justin A. Thornton (Law Offices of Justin Thornton, Washington, D.C.) have published an article on the KPMG tax shelter cases: Tax Crimes: Has the Bright Line Moved? Here is the Conclusion:
We and our civil tax colleagues will watch these cases closely, because while proof of intentional lying, cheating and concealment will make these cases more like traditional criminal tax cases, arguments that a transaction was novel, “too good to be true,” or lacked a profit motive or economic substance, will sound like the province of civil tax cases It will take one or more criminal trials and perhaps appeals to clarify whether the government has moved the fences in the field of tax planning, or whether these cases, though more complex, still rest on core allegations of criminal tax evasion. So stay tuned.
Richard L. Kaplan (Illinois) has posted Back to School: The New Parameters of Funding a Grandchild's College Education, J. Retirement Plan., pp. 25-36, Jan.-Feb. 2008, on SSRN. Here is the abstract:
This article examines several different mechanism for funding college expenses from the perspective of a grandparent. The mechanisms considered include direct gifts to the grandchild or the educational institution, college savings bonds (both state and federal), prepaid tuition contracts, college savings plans created under tax code section 529, and Coverdell Education Savings Accounts.
Although these college funding mechanisms are not new, legislation enacted within the past two years has radically altered many of the rules of thumb that have applied in the past. Specifically, the Tax Increase Prevention and Reconciliation Act of 2005 (actually enacted in May 2006) and the Small Business and Work Opportunity Tax Act of 2007 that accompanied that year's increase in the federal minimum wage have basically eliminated any tax advantage of custodial accounts as college funding vehicles. On the other hand, the Pension Protection Act of 2006 has enhanced the tax appeal of 529 plans at the same time that the Deficit Reduction Act of 2005 (actually enacted in February 2006) improved the financial aid status of such plans. Finally, that Deficit Reduction Act also created significant hurdles for grandparents who anticipate accessing the Medicaid program to pay their long-term care costs.
To determine the approach that best serves all family members, this article begins by considering several factors that are relevant to the financing of a grandchild's college expenses. These factors include: (1) the grandparents' and the grandchildren's income tax situation, (2) the grandparents' possible exposure to gift taxes, (3) the grandparents' desire to ensure that the funds they provide are actually used to pay for college costs, (4) the Medicaid implications for the grandparents, and (5) the impact on a grandchild's eligibility for needs-based financial aid. The article then examines the various mechanisms that are available to fund a grandchild's college costs and analyzes each mechanism in terms of these factors.
Tuesday, February 19, 2008
- Total Law School Enrollment: 149,745 (up 0.7% from 2006)
- Total J.D. Enrollment: 141,433 (up 0.3%)
- Male: 75,383 (53.2%) (up 0.6%); Female: 6,050 (46.8%) (down 0.1%)
- Minority: 30,598 (21.6%) (up 0.1%)
- Total First Year J.D. Enrollment (up 0.1%)
- Male: 25,799 (52.7%) (down 2.0%); Female: 23,165 (47.3%) (up 2.4%)
- Minority: 10,992 (22.4%) (up 0.9%)
Pastor Again Asks Followers to Pray for Death of Critics Who Filed IRS Complaint Over His Endorsement of Huckabee
In August, I blogged Pastor Supports Huckabee for President, Asks Followers to Pray for Death of Critics Who Filed Complaint with IRS Over His Political Activities. The L.A. Times reports that Pastor Again Asks Prayers for Demise of Group's Leaders:
For the second time in six months, Buena Park pastor Wiley S. Drake has called on his followers to pray for the demise of leaders of Americans United for Separation of Church and State.
Last week, Drake learned that the IRS had launched an investigation into his endorsement of former Arkansas Gov. Mike Huckabee's presidential bid, an inquiry that Americans United had urged.
The endorsement was written on church letterhead and announced during a church- affiliated Internet radio show. As tax-exempt organizations, churches are barred from campaigning for candidates. IRS officials declined to comment on the matter, citing privacy regulations.
In an e-mail Thursday, Drake urged action against Americans United and the American Civil Liberties Union.
As he had in August, Drake quoted Psalm 109, which speaks of wicked and deceitful people and asks God to let such a person's days be few and let his children be fatherless and his wife a widow. "In light of the recent attack from the enemies of God, I ask the children of God to go into action with imprecatory prayer," he wrote.
- Americans United for Separation of Church and State: Americans United Deplores California Pastor's Renewed 'Death Prayer' Campaign
- Associated Press: IRS Probes Pastor's Huckabee Endorsement
- Christianity Today: Pastor prays for Foes' Demise; IRS Complaint Calls for God to Smite Civil Liberties Groups
- L.A. Times: IRS Investigates Pastor's Huckabee Endorsement
- Nonprofit Law Prof Blog: Church Asked to Pray for the Death of Those Who Dropped Dime to IRS
Update: Linda Beale has more here.
David Cay Johnston presents a public lecture on Will Your Legal Job Be Outsourced? Why Are Lawmakers Giving Tax Breaks for Outsourcing? at Seton Hall today at 5:00 p.m.. The speech is hosted by Frank Pasquale, the Student Bar Association, and the Tax Law Society.
Charles L. Ballard (Michigan State University, Department of Economics) & Jaimin Lee (Korea Transport Institute) have published Internet Purchases, Cross-Border Shopping, and Sales Taxes, 60 Nat'l Tax J. 711 (2007). Here is the abstract:
Using data from the Current Population Survey for 1997 and 2001, we estimate the probability that a consumer engages in online shopping. We use variation in sales–tax rates by county to identify the effects of the sales–tax rate in the home county and adjacent counties. We also control for the sales–tax base. The estimates are consistent with the interpretation that consumers use Internet shopping to avoid sales taxes. In addition, consumers who live adjacent to counties with lower sales–tax rates are less likely to shop via the Internet, all else equal. We interpret this as evidence of cross–border shopping.
In a major decision, the Third Circuit on Friday (No. 06-3388) reversed the Tax Court's decision in Swallows Holding, Ltd. v. Commissioner, 126 T.C. 96 (2006), which had invalidated Treas. Reg. § 1.882-4(a)(3)(i). The Third Circuit held that the Tax Court had failed to give proper Chevron deference to the regulation:
This case, grounded in the principles of administrative law, requires that we review the validity of an Internal Revenue Service (IRS) regulation. The Tax Court, in considering this regulation, analyzed it under the factors provided in National Muffler Dealers Ass’n v. United States, 440 U.S. 472, 477 (1979), and concluded that the regulation was invalid. In coming to this conclusion, the Tax Court explained that the standard established in National Muffler had not been replaced by Chevron U.S.A., Inc. v. Natural Resources Defense Counsel, Inc., 467 U.S. 837 (1984), and that the result under either standard would be the same. We do not agree with the outcome reached by the Tax Court. We have determined that the result would not be the same under Chevron analysis as it would be under National Muffler and that the regulation here should be given Chevron deference. ...