Saturday, October 31, 2009
A few weeks ago, an email came my way that opened with this question: “Can you deduct the cost of your Halloween costume as a business expense?” It then answered the question:No, if you bought it to go trick-or-treating with your kids.
Yes, if you bought it to attend a client's Halloween party.
For both? Then proportion the cost based on % of use.
You can find this question and answer on the web at Ways Through the Maze: A Tax Guide for Indies.[I]f a costume is purchased for use at a Halloween party, the taxpayer doesn’t have a ghost of a chance when it comes to deducting the cost. Hopefully, people aren’t goblin up the advice being shared by those who claim that the cost of a Halloween costume purchased for use at a client’s party is deductible.
Though I agree with the first part of the response, I recoil in horror at the second. Unquestionably there is no deduction if the costume is purchased for a Halloween outing with the children. But if the purchase is for a client’s party, the answer depends on whether the cost of attending the party is an ordinary and necessary expense of carrying on a trade or business. And that means that the third part of the response, dealing with percentage of use, requires a more sophisticated determination than simply hours at a party compared to hours with the children, but rather a comparison of deductible use versus non-deductible use. ...
Wall Street Journal, State Death Taxes Are the Latest Worry:
(Hat Tip: Hani Sarji.)
With the federal estate tax disappearing for most people, state death taxes have emerged as a surprise new worry.
This year, the federal exemption rose to $3.5 million per individual, or as much as $7 million per married couple. At the current level, only 5,500 estates a year are federally taxable.
That is down from the 17,500 estates that would have faced death taxes under the previous $2 million limit, the Urban-Brookings Tax Policy Center estimates.
The problem is that most states with estate or inheritance taxes haven't raised exemptions to match the federal limits. That means thousands of taxpayers who now escape the federal levy could still get hit with a state death tax.
As a result, tax advisers are tweaking bypass trusts that allow married couples to maximize exemptions from state taxes. They are advising taxpayers where to retire in order to pare or eliminate estate taxes. And they are counseling out-of-state taxpayers so that they don't get dinged for property they own in a state with a tough death tax. ...
Seventeen states and the District of Columbia currently impose estate taxes, according to CCH Wolters Kluwer. Eight states have inheritance taxes, which are levied on heirs, not estates. Maryland and New Jersey have both.
Compared to the uniform federal tax, state taxes are a crazy quilt. In many states with inheritance taxes, rates are tied to how closely the heir is related to the late donor. Iowa and Kentucky exempt both spouses and children who inherit property, while Nebraska treats only transfers to spouses as tax-free.
Rates and exemptions vary widely. Washington state's top tax rate is 19%, but it applies only to estates over $2 million. Pennsylvania, by contrast, taxes children and grandchildren of an heir at an almost-flat rate of 4.5%. More-distant heirs pay up to 15%.
Michael P. Devereux (University of Oxford, Saïd Business School) & Clemens Fuest (University of Oxford, Saïd Business School) have published Is the Corporation Tax an Effective Automatic Stabilizer?, 62 Nat'l Tax J. 429 (2009). Here is the abstract:
We investigate the extent to which the corporation tax can act as an automatic stabilizer by smoothing the effects on investment of shocks to income. The main stabilizing effect would be through a reduced tax liability affecting the internal funds available for investment by credit-constrained companies. We present evidence for the United Kingdom that most credit-constrained firms have also been likely to be in a tax loss-making position, implying that the tax does not smooth investment, and thus is not an effective automatic stabilizer. A more generous treatment of tax losses would introduce significantly more automatic stabilization.
Marguerite Racher Snyder (J.D. 2009, Indiana) has published Note, Recasting Carried Interest: An Examination of Recent Tax Reform Proposals, 84 Ind. L.J. 1449 (2009). Here is part of the Introduction:
This Note assesses whether carried interest, a fund manager's profits interest, should be taxed at ordinary income rates or maintain its current low capital gains tax rate. The recent economic downturn has demonstrated the extent to which carried interest payments are not guaranteed, as private equity firms have suffered tremendous losses resulting from diminished returns. The Senate's proposal to tax all publicly traded investment partnerships as corporations aptly targets tax-advantaged publicly traded partnerships, such as Blackstone and Fortress, that have used their “passive income” to achieve unintended tax advantages. In contrast, the House's broad proposal to recast carried interest from capital gains into ordinary compensation is overly punitive and misguided. The responsibilities undertaken and capital contributed by many investment partnerships that utilize the carried interest fee structure embody the types of capital risks that the current legal regime taxes at a preferential rate.
Part I examines the tax benefits associated with using a partnership structure, and how private equity and venture capital general partners are able to achieve substantial tax savings. Part II addresses the arguments for and against taxing carried interest at ordinary income rates. Part III examines the unintended tax benefits achieved by publicly traded partnerships such as Blackstone. This Note concludes that attempts to frame carried interest tax policy as an “either/or” proposition are ill-conceived, and the proper legislative approach to taxing carried interest must recognize that it embodies both ordinary income and capital gain.
Sean Carey (J.D. 2010, Fordham) has published Note, Post-Davis Conduit Bonds: At The Intersection of the Dormant Commerce Clause and Municipal Debt, 78 Fordham L. Rev. 121 (2009). Here is the abstract:
This Note addresses the constitutionality of the selective taxation of conduit bonds, a subset of municipal bonds that finance private enterprise, in the aftermath of the U.S. Supreme Court’s decision in Department of Revenue v. Davis. In Davis, the Court determined that states could tax interest earned on out-of-state municipal bonds while exempting interest earned on its own bonds without violating the Commerce Clause of the Constitution. When issuing this ruling, the Court drew a distinction between municipal bonds issued on behalf of the government and municipal bonds issued on behalf of private industry. The question of whether or not selective taxation was constitutional as applied to municipal bonds issued on behalf of private industry was explicitly left for another day. This Note begins with a discussion of municipal bonds and the dormant Commerce Clause. Next, this Note reviews the arguments for and against subjecting conduit bonds to the selective tax system. Finally, this Note recommends the adoption of a sui generis assessment to identify bonds whose central purpose is economic protectionism so that they may be excluded from the selective tax system.
Friday, October 30, 2009
Under the current tax and transfer system, the taxes that each individual must pay to the government, and the transfers that she is entitled to receive, are based on a long and varied list of personal attributes. Her income from various sources, her expenses of various kinds, her assets, her liabilities, her age, her family structure-all the numbered lines on all the tax and benefit forms that she files-all these are, in effect, inputs into a massive tax and transfer calculus, the output of which is her net tax liability.
Is this the way it should be? Should the list of attributes that determine (net) tax liability be so broad-ranging? Should the tax (and transfer) base be so eclectic?
This paper is not a defense of the current tax and transfer system. It does, however, present an argument for the general principle of tax base eclecticism. It does so in two parts.
John R. Graham (Duke University, Fuqua School of Business) & Hyunseob Kim (Duke University, Fuqua School of Busines) have published The Effects of the Length of the Tax-Loss Carryback Period on Tax Receipts and Corporate Marginal Tax Rates, 62 Nat'l Tax J. 413 (2009). Here is the abstract:
We investigate how the length of the net operating loss carryback period affects corporate liquidity and marginal tax rates. We estimate that extending the carryback period from two to five years, as recently proposed in President Obama’s budget blueprint, would provide $19 ($34) billion of additional liquidity to the corporate sector for 2008 (2009). Our calculations imply that the benefits of the extended carryback period would be concentrated in the homebuilding, automobile, and financial industries. Extending the carryback period would increase the marginal tax rate of loss firms by more than 200 basis points on average, which all else equal would lead corporations to use an additional $8 ($10) billion of debt and reduce tax payments by another $1.2 ($1.5) billion in 2008 (2009). Overall, the tax break proposed by the Obama administration would have a significant liquidity effect on corporations suffering large losses in recent years. If the tax proposal were extended to include TARP firms, the liquidity effect would triple in size.
Keith Blair (Baltimore) has published Praying for a Tax Break: Churches, Political Speech and the Loss of Section 501(c)(3) Tax Exempt Status, 86 Denv. U. L. Rev. 405 (2009). Here is the abstract:
Churches in the United States, like individuals, are free to speak on any issue that they choose. However, if a church wishes to retain tax-exempt status, it must comply with the requirements of § 501(c)(3). One of those requirements is that churches may not participate or intervene in political campaigns. Some churches, however, believe that their mission includes not just traditional religious teachings, but guidance on issue that affect the lives of their parishioners, including politics. Those churches believe they are fulfilling their faith and mission when they offer this guidance.
This has caused a tension between the IRS, which must enforce the tax laws, and churches that feel that it is part of their mission to speak out on social issues of the day, which may include political issues. With the 2008 U.S. Presidential election already in full swing, this issue has become more visible and more contentious.
This paper examines the issues involved in churches, political speeches and tax-exempt status. It will propose that a limited exception created for churches so that they may speak freely on all issues to their congregants, including politics, during regularly scheduled religious services.
I. Richard Gershon (Charleston) has posted Teaching Federal Income Taxation Using Socioeconomics, 41 San Diego L. Rev. 401 (2004), on SSRN. Here is the abstract:
Taxpayers do not always act in ways that can be predicted solely by their economic interests. This article explores the use of socioeconomic theory in teaching federal income taxation.
Congratulations to the University of Cincinnati College of Law's Class of 2009, who earned a 91.0% pass rate on the July 2009 Ohio Bar Exam, compared to an 87.8% state-wide average for first-time test-takers. Here are the results by school for first-time test-takers, along with each school's U.S. News ranking:
- Ohio State: 93.8% (#35)
- Akron: 92.1% (Tier 3)
- Cincinnati: 91.0% (#52)
- Toledo: 89.4% (Tier 3)
- Capital: 89.0% (Tier 4)
- Cleveland State: 85.6% (Tier 3)
- Case Western: 84.3% (#55)
- Northern Kentucky: 84.1% (Tier 4)
- Dayton: 79.5% (Tier 4)
- Ohio Northern: 78.4% (Tier 3)
Tax Analysts hosts a conference today on The State Fiscal Crisis: Where It Came From, How to Solve It at the National Press Club in Washington, D.C.:
Please join us for a roundtable discussion about what factors caused the fiscal crisis that states continue to face, and about the steps that states should take to address it.
- Christopher Bergin (President and Publisher, Tax Analysts) (moderator)
- Scott Pattison (Executive Director, National Association of State Budget Officers)
- Nicholas Johnson (Director, State Fiscal Project, Center on Budget and Policy Priorities)
- Joseph Henchman (Tax Counsel and Director of State Projects, Tax Foundation)
- Douglas L. Lindholm (President & Executive Director, Council On State Taxation)
The Treasury Inspector General for Tax Administration yesterday released Controls Over the Contracting Officer’s Technical Representatives Workforce Were Ineffective, Resulting in Significant Risks to the Government (2009-10-139):
The IRS must increase the effectiveness of its contract oversight, the Treasury Inspector General for Tax Administration (TIGTA) concluded in a report publicly released today.
During 2008, the IRS managed approximately 700 contracts with a total contract value of approximately $34 billion. These contracts were awarded by contracting officers who delegated their oversight authority to employees designated as contracting officer's technical representatives (COTR).
TIGTA found that the majority of the COTRs were not performing day-to-day contract oversight or physical receipt and acceptance of contract deliverables for the procurements to which they were assigned. Instead, these COTRs limited their involvement to administrative functions (i.e., documenting receipt of goods and services in IRS computer tracking systems) and relied on program office employees to determine whether the goods or services provided by the contractor were acceptable.
Yair Jason Listokin (Yale) has posted Stabilizing the Economy Through the Income Tax Code,123 Tax Notes 1575 (June 29, 2009), on SSRN. Here is the abstract:
This note examines how the income tax code can be altered to stabilize the economy in the face of fluctuations. First, the note suggests that tax expenditures for goods with high income elasticities should be replaced with government spending, while tax expenditures for inferior goods should be expanded. Second, income tax rates should be indexed to the growth rate of the economy, with marginal rates higher in boom periods and lower in recessions. Finally, implicit tax expenditure subsidies should be decoupled from marginal rates via the use of tax credits. All of these recommendations will enhance the stabilizing effect of the income tax in the current era of economic uncertainty.
- Tax Compliance Initiatives
- Implementing Tax Law Changes
- Providing Quality Taxpayer Service Operations
- Human Capital
- Erroneous and Improper Payments and Credits
- Taxpayer Protection and Rights
- Leveraging Data to Improve Program Effectiveness and Reduce Costs.
Thursday, October 29, 2009
Many substantive areas within legal studies have been exploring the possibilities presented by inter-country multilateral agreements as a mechanism for coordinating regulatory regimes. This paper contibutes to that broader literature by exploring the possibilities presented by multilateral tax treaties in theory and practice. After reviewing some of the potential advantages of multilateralism (over bilateralism) the paper evaluates whether the CARICOM multilateral double taxation treaty delivers on the predicted benefits.
Many economists favor revenue-neutral reforms that broaden the corporate tax base and lower the statutory tax rate. Economic analysis provides partial, but not complete, support for this view. Welfare gains do not arise from a lower tax rate as such, but from leveling the playing field between different types of capital or otherwise promoting economic efficiency. Some base broadening measures obstruct, rather than advance, efficiency. Furthermore, corporate tax base broadening is likely to yield smaller welfare gains than reforms that reduce the distortion between business and non-business capital or between current and future consumption.
Michael Trebilcock is by all accounts one of his generation's most prolific and important scholars of law and economics. Through more than 200 articles, book chapters, books, edited volumes, and other academic publications, Trebilcock has made lasting contributions to many fields including (and this is a partial list): contracts, torts, consumer protection, antitrust, international trade, immigration, regulation, and law and development. In recognition of his teaching and research, he has received awards and distinctions from students, universities, governments, and scholarly societies. The symposium for which this essay was prepared is only the latest token of appreciation for Trebilcock's profound and prominent contributions to the intellectual depth and breadth of legal thought.
And yet, despite the accolades, the attention, and the richly-deserved scholarly fame, there is a comparatively unlit corner of Trebilcock's oeuvre; the part dealing with income tax law. Although it would be the inaccurate to say that it has been entirely overlooked, most readers of Trebilcock's more discussed work will not be acquainted with the fact that his scholarly career began, inauspiciously as it might seem, nearly five decades ago with a 224 page long LL.M. thesis at the University of Adelaide. Almost unbelievably, this substantial piece of work was dedicated to analyzing just a single provision of Australian income tax law: a general anti-avoidance rule aimed at combating tax avoidance. This essay seizes control of the spotlight that has been trained on Trebilcock's other work and redirects it to Trebilcock's early tax scholarship.
Joel S. Newman (Wake Forest) has posted two tax papers on SSRN:
A study of the development, the pros and cons, and the reaction to, the recently enacted bike commuter tax fringe benefit law. Ironically, even though Congressman Earl Blumenauer (D.Oregon) worked for at least seven years to enact the provision, he ultimately voted against it. It was attached to the $700 billion TARP bailout bill, which he opposed.
- Other People's Money. 125 Tax Notes 137 (Oct. 5, 2009):
In informal banking arrangements such as cundinas and tandas, the “banker” will have an unexplained fund of money, which the IRS will presume was acquired in a taxable way. Drug dealers and embezzlers often have the same problem. The informal bankers, with adequate records, can rebut the presumption. However, it is too bad that they have to be analogized to criminals in order to do so.
Wall Street Journal, First-Time Fraudsters: A Tax Credit So Silly Even a Four-Year-Old Can Exploit It:
It's hard not to laugh when viewing the results of the federal first-time home-buyer tax credit. The credit, worth up to $8,000 for the purchase of a home, has only been available since April of last year. Yet news of the latest taxpayer-funded mortgage scam has traveled fast. The Treasury's inspector general for tax administration, J. Russell George, recently told Congress that at least 19,000 filers hadn't purchased a home when they claimed the credit. For another 74,000 filers, claiming a total of $500 million in credits, evidence suggests that they weren't first-time buyers.
Among those claiming bogus credits, at least some of them were definitely first-timers. The credit has already been claimed by 500 people under the age of 18, including a four-year-old. This pre-K housing whiz likely bought because mom and dad make too much to qualify for the full credit, which starts to phase out at $150,000 of income for couples, $75,000 for singles.
As a "refundable" tax credit, it guarantees the claimants will get cash back even if they paid no taxes. A lack of documentation requirements also makes this program a slow pitch in the middle of the strike zone for scammers. The IRS and the Justice Department are pursuing more than 100 criminal investigations related to the credit, and the IRS is reportedly trying to audit almost everyone who claims it this year.
Speaking of the IRS, apparently its own staff couldn't help but notice this opportunity to snag an easy $8,000. One day after explaining to Congress how many "home-buyers" were climbing aboard this gravy train, Mr. George appeared on Neil Cavuto's program on the Fox Business Network. Mr. George said his staff has found at least 53 cases of IRS employees filing "illegal or inappropriate" claims for the credit. ...The program is set to expire at the end of November, so naturally given its record of abuse, Congress is preparing to extend it. Republican Senator Johnny Isakson of Georgia is so pleased with the results that he wants to expand the program beyond first-time buyers and double the income limits.
- Russell E. Nance & Daniel R. Read, Tax Consequences of Distressed Debt Investing, 26 J. Tax'n Inv. 3 (Spring 2009)
- Graham R. Green, Prepay It Forward: Horizontal Equity and the Taxation of ETNs, 26 J. Tax'n Inv. 22 (Spring 2009)
- John H. Turner III, Heather Hoch Szajda & Farhad Aghdami, A Guide to Post Mortem Planning and Its Impact on Estate and Trust Administration, 26 J. Tax'n Inv. 41 (Spring 2009)
- David T. McIndoe, Swaptions Deconstructed, 26 J. Tax'n Inv. 60 (Spring 2009)
- Ross Bengel & George A. Dassaro, The Future of Estate and Gift Tax Reform, 26 J. Tax'n Inv. 67 (Spring 2009)
- Paul Yenerall, Entity Planning With Respect to Employee Benefit Plans and Review of Compensation Plan Choices, 26 J. Tax'n Inv. 82 (Spring 2009)
- Kevin A. Diehl, Are Short-Term Capital Gains Allocated as Ordinary Income Where LLC Agreement Does Not Say? Court of Federal Claims Says No, 26 J. Tax'n Inv. 90 (Spring 2009)
Lawrence Lokken (Florida) has posted Tax Return Preparers' Uses and Disclosures of Tax Return Information on SSRN. Here is the abstract:
It is a criminal offense for a tax return preparer to make an unauthorized use or disclosure of tax return information, and such a use or disclosure is also subject to a civil penalty. The Treasury, in 2008, restated the regulations under the rules imposing these sanctions. The new regulations broaden the scope of several of the crucial terms. For example, for purposes of these rules, the term 'tax return information' includes all information coming into a preparer’s possession in the course of preparing a taxpayer’s return, including, for example, data on a credit card that the taxpayer uses to pay the preparer’s fee, and the term 'tax return preparer' includes all employees of a preparation firm having access to tax return information, including, for example, a clerical employee whose only role in the preparation of a return is to process the taxpayer’s credit card payment of the preparer’s fee. The regulations forbid all uses and disclosures of tax return information, except those explicitly permitted by the regulations. Without a taxpayer’s consent, a preparer can generally use or disclose this information only in connection with preparation of the taxpayer’s return. Almost any use or disclosure is permissible with the taxpayer’s consent, but consent must be in writing, clearly stated, and given before the use or disclosure occurs. For example, a use of taxpayer information to solicit business other than tax preparation services is permissible only with the taxpayer’s prior written consent. This article, an excerpt from an upcoming revision of the treatise, Federal Taxation of Income, Estates & Gifts, discusses the use and disclosure regulations
Yehonatan Givati (John M. Olin Fellow in Law & Economics, Harvard Law School) has posted Strategic Statutory Interpretation by Administrative Agencies, 11 Am. Law & Econ. Rev. ___ (2009), on SSRN. Here is the abstract:
Many statutes are administered by administrative agencies. This paper shows that, when interpreting an ambiguous statute, administrative agencies choose between two strategies of statutory interpretation: the risky strategy - a relatively aggressive interpretation that provokes an appeal by the firm - and the safe strategy - a relatively non-aggressive interpretation that the firm complies with. The paper also shows that a change in the level of judicial deference may result in a shift from the risky strategy to the safe one, or vice versa. Therefore, contrary to the commonly held view, an increase in the level of judicial deference may result in agencies choosing a less aggressive statutory interpretation, and in more court decisions reversing agencies' statutory interpretation.
Wednesday, October 28, 2009
Karen C. Burke (San Diego) presents Back to the Future: Revisiting the ALI's Carried Interest Proposals, 125 Tax Notes 242 (Oct. 12, 2009), at SMU today as part of its Tax Policy Colloquium Series. Here is the abstract:
Congress is currently considering carried-interest legislation (§ 710) that would limit the ability of service partners to convert ordinary compensation income into tax-favored capital gain. While the problem of conversion undoubtedly merits attention, the premise of the proposed legislation deserves closer scrutiny. This article argues that Treasury may already have the requisite authority under existing law to address capital gain conversion and avoidance of other limitations, and that instead of enacting complex new statutory provisions of uncertain scope Congress should consider directing Treasury to promulgate anti-abuse regulations under § 707(a)(2)(A). The article draws on the the American Law Institute's reform proposals concerning the treatment of service partners.
While policymakers struggle with identifying and enacting the appropriate short-term policy response to the financial crisis and economic downturn of 2008, 2009, and perhaps beyond, both academics and policymakers are examining the causes of the crisis and what lessons this might bring to bear on longer-term policy. In this paper, I offer some speculations about the lessons for tax policy, and the analysis of tax policy, from the Great Recession. What did we get wrong? What did we underestimate the importance of? What do we need to think more about? One conclusion is that public finance economists need to better integrate the economic analysis of taxation with the concerns and expertise of macroeconomists, finance economists, and accountants. This is especially important for obtaining a better understanding of financial institutions, whose behavior is affected by the tax, accounting, and regulatory rules they face, rules that are inter-related but not coordinated.
My colleague Stephanie McMahon has published To Save State Residents: States' Use of Community Property for Federal Tax Reduction, 1939-1947, 27 Law & Hist. Rev. 585 (2009). Here is the abstract:
This essay analyzes the forces that led five common law states to adopt community property regimes between 1939 and 1947. Focusing on Oklahoma, the first state to switch, this article traces these laws from initial proposals through their repeal after Congress enacted nationalized income-splitting in 1948. Earlier studies have focused on the impact of these laws, primarily on wives as secondary earners within families, and not on their development. From the various political and social forces precipitating this trend, this study explores the actual reasons states adopted these regimes and shows that an economic goal, namely reducing married couples' federal income taxes, drove state legislatures. Thus, while examining state legislative processes, this paper shows the goal of federal tax reduction led to changes in an entirely separate area of state law. This analysis also provides a new perspective on the American federal system, illustrating the complex and reciprocal relationship between state and federal laws and incentives. While initially states altered their domestic laws to give their residents a benefit under the federal tax code, using the federal system to win benefits for their residents vis-a-vis those of other states, these state-law changes ultimately induced the federal government to adopt a uniform national policy on income-splitting.
National Law Journal, Law Faculties Recruited to Anti-Smoking Squads:
Faculty members at Widener University School of Law will have a new role to play next academic year: smoking police.
They won't have matching uniforms or extensive training. They will be armed with small cards that detail the school's impending ban on smoking or using tobacco products anywhere on campus, indoors and outdoors. If that's not enough to keep people from lighting up on campus, repeat offenders might be fined, said Linda L. Ammons, the law school's dean.
Widener is one of a growing number of law schools that are getting tough on smoking by students, faculty, staff and visitors. Most law schools already prohibit smoking inside and near buildings, but at least three are preparing to become completely smoke-free campuses next summer. At least five already are. According to the American Lung Association, 176 colleges and universities in the United States are now fully smoke-free.
Wolfgang Schoen, Tobias Beuchert, Astrid Erker, Andreas Gerten, Maximilian Haag, Sabine Heidenbauer, Carsten Hohmann, Daniel Kornack, Nadia Lagdali, Christine Osterloh-Konrad, Carlo Pohlhausen, Philipp Redeker, Erik Roeder (all of the Max Planck Institute for Intellectual Property, Competition & Tax Law) & Lukas Müller (University of Zurich, School of Law) have posted Debt and Equity: What's the Difference? A Comparative View on SSRN. Here is the abstract:
The divide between debt and equity belongs to the focal points of national and international tax law. Under domestic individual income tax law, it is crucial for the distinction between a creditor-debtor relationship and a full partnership of taxpayers jointly carrying on a business. Under domestic corporate income tax law, it is decisive for the application of a two-layer taxation of corporate profits and dividends. Under international income tax law, the allocation of taxing rights and the application of withholding taxation follows largely the distinction between debt and equity. Against this background, this article analyses on a comparative basis the major features of debt and equity under corporate law, accounting law and tax law in six jurisdictions (Austria, France, Germany, Switzerland, United Kingdom, United States). It becomes clear that the debt-equity divide is shaped differently for purposes of individual income taxation, corporate income taxation and international income taxation. While individual or corporate income taxation largely looks at the similarities between a full partner or a full shareholder on the one hand and the holder of a hybrid debt instruments on the other hand, international tax rules tend to include all sorts of profit-dependent payments under the rules for corporate profits and dividends. It remains to be seen whether the dependency of payments on contingent profits (or other proprietary elements of a business entity like turnover) forms a convincing rationale for the existing distinctions between debt and equity in the international tax arena or whether tax policy should opt for full or near equal treatment of these financial instruments.
The Justice Department has filed lawsuits against seven people accused of seeking $562 million in bogus tax refunds (including one refund claim of $210 million for a single customer). From the Department of Justice Press Release:
Under the tax fraud scheme, known as the “redemption” or “OID redemption” scheme, participants file a series of false IRS forms, including tax returns, amended returns, and Forms 1099 (including Form 1099-OID) or Forms W-2, to request fraudulent tax refunds based on phony claims of large income tax withholding. According to papers filed in these cases and earlier cases against other alleged scheme promoters, redemption scheme promoters are tax defiers who falsely tell customers that the federal government maintains “secret” accounts of money for its citizens. Promoters claim to be able to help customers access the secret funds by filing the false IRS forms.
Altogether, according to the IRS, redemption scheme participants (including customers of the defendants in the seven lawsuits filed this week) have requested a total of $3.3 trillion in fraudulent refunds.
Tax Court: Payment to Withdrawing Holland & Knight Tax Partner Constituted Ordinary Income, Not Capital Gain
SSRN has updated its monthly rankings of 616 American and international law school faculties and 1,500 law professors by (among other things) the number of paper downloads from the SSRN data base. Here is the new list (through October 18, 2009) of the Top 25 U.S. Tax Professors in two of the SSRN categories: all-time downloads and recent downloads (within the past 12 months):
- Stanley M. Johanson (Texas), Recent Developments in Estate and Gift Taxation
- Ira Shepard (Houston), Recent Developments in the Taxation of Individuals
- Daniel L. Simmons (UC-Davis), Recent Developments in the Taxation of Corporations and Shareholders
- William Streng (Houston), Reconsidering Entity Selection in Uncertain Times
Theodore P. Seto (Loyola-L.A.) has published When is a Game Only a Game?: The Taxation of Virtual Worlds, 77 U. Cin. L. Rev. 1027 (2009). Here is the abstract:
When is a game only a game? To date, articles on the taxation of activities in virtual worlds have not attempted an answer to this question. Instead, they have attempted to formulate rules applicable equally to worlds created solely for entertainment purposes and worlds structured to serve as venues for serious economic activity. This article proposes a bright-line test, at least with respect to the taxation of cash method taxpayers, for distinguishing between these two types of worlds. Transactions in worlds whose currencies are redeemable or convertible, it argues, should be subject to current taxation under standard cash method timing rules, applied in-world. Transactions in worlds whose currencies are neither redeemable nor convertible, by contrast, should not be currently taxable. Activities in such worlds should be treated, rather, as non-taxable entertainment unless and until players engage in real money trades. Althought articulated in the context of virtual worlds, the proposed test works equally well in distinguishing taxable from non-taxable real-world games. Pinball points are neither redeemable nor convertible. If an accumulation of pinball points results in further game play, the proposed test suggests that the winning of such further game play should not be taxable. Casino chips, by contrast, are redeemable. The receipt of casino chips as gaming winnings should therefore be treated as an immediately taxable event; we should not have to wait until the patron cashes out to tax her winnings. In the course of its analysis, the Article offers, in addition, a new take on the concept of realization and a new formulation of the cash equivalence doctrine.
The ABA Tax Section offers a teleconference and webcast today on Let's Make a Deal With the IRS - OR- Is Discharge the Answer? from 1:00 - 2:30 p.m. EST:
This presentation will provide a review of the dischargeability rules for taxes in bankruptcy, and a review of the opportunities to resolve taxes through the collection alternatives as provided by the Internal Revenue Code. The speakers will then debate the pros and cons of each alternative. Finally, a current survey of case law with respect to the dischargeability of taxes and most particularly, the evasion to pay exception to discharge will be presented.
Tuesday, October 27, 2009
Although interest groups have always played an important role in American democracy, by 1932 national special interest groups had grown so dramatically in numbers and power that many contemporaries believed that they had altered the very nature of the political process. Their rise to power resulted from several broad trends that began at the turn of the century and accelerated over the prior two decades, especially the growth of mass media technology, growth of national markets, and increased knowledge (and use) of the art and science of persuasion. Tax Politics and the Common Folk: 1932-1936 examines several instances in which organized groups attempted to shape tax law and policy by directly lobbying legislators and indirectly lobbying them through attempts to shape public opinion.
- Bloomberg, Senate Close to Deal Replacing Homebuyer Tax Credit
- Center on Budget & Policy Priorities, Proposed Expansions of Homebuyer Tax Credit Would Be Highly Inefficient and Squander Federal Resources
- Reuters, Senate Dems Reach Deal on Homebuyer Credit
- Wall Street Journal, Senate Haggles Over Home-Buyer Tax credit Extension
- Washington Post, The Home-Buyer Tax Credit: Throwing Good Money After Bad
Chicago Sun-Times, City May Pay You for Turning in Tax Cheats:
(Hat Tip: Joshua Blank.)
Would you be willing to rat out a business that's cheating Chicago on taxes in exchange for a share of back taxes recovered?
City Hall is counting on it.
Mayor Daley's tough-times, 2010 budget includes a first-ever "Tax Whistleblower Program" expected to include cash bounties for informants who deliver the goods on unpaid business taxes. The cash reward would be a percentage of the amount recovered, but specifics are still being worked out.
House Ways & Means Committee Chair Charles Rangel, Senate Finance Committee Chairman Max Baucus, House Ways & Means Select Revenue Subcommittee Chair Richard Neal, and senior Senate Finance Committee member John Kerry today introduced the Foreign Account Tax Compliance Act.
- Legislative Text
- Staff Summary
- Joint Committee on Taxation Technical Explanation (JCX-42-09)
- Press Release
- Statement by Treasury Secretary Geithner (TG-332)
- Bloomberg, Foreign Banks Face US Tax for Concealing Accounts
- Wall Street Journal, Democrats Unveil Offshore Tax Evasion Bill
The career panels typically include three to four lawyers representing private practice, the government, academia, and one of the big four accounting firms. Panelists generally speak for about five minutes each, relating how they pursued their careers, pitfalls they may have encountered, and any advice they may have for the students interested in pursuing a career in tax law. A 10-15 minute Q&A session concludes the panel, and participants then break for a networking reception, including light refreshments and drinks.
The following Careers in Tax Law Panels are scheduled for fall 2009. Please click on the school where you’d like to attend a career panel to RSVP:
William Congdon (Research Director, The Brookings Institution), Jeffrey Kling (Senior Fellow, The Brookings Institution) & Sendhil Mullainathan (Harvard University, Department of Economics) have published Behavioral Economics and Tax Policy, 62 Nat'l Tax J. 375 (2009). Here is the abstract:
Behavioral economics is changing our understanding of how economic policy operates, including tax policy. In this paper, we consider some implications of behavioral economics for tax policy, such as how it changes our understanding of the welfare consequences of taxation, the relative desirability of using the tax system as a platform for policy implementation, and the role of taxes as an element of policy design. We do so by reviewing the logic of specific features of tax policy in light of recent findings in areas such as tax salience, program take-up, and fiscal stimulus.
Wall Street Journal, IRS Brings New Focus to Auditing the Rich, by Martin Vaughan:
A new IRS enforcement unit targeting the very wealthy will help the tax agency decode partnerships, offshore trusts and other complex techniques used to hide income, IRS Commissioner Doug Shulman said Monday.
Dubbed the Global High Wealth Industry group, the unit will launch "a small number" of audits of individuals with assets or income in the tens of millions of dollars, Mr. Shulman told an accountants' trade group. An IRS official said the group would begin work on these initial audits in the next month.
The high-wealth group, housed in the IRS's large- and medium-sized business division, marks a sharpening of the IRS approach to auditing the very wealthy. Its creation is a response to the complex web of entities and transactions many high-net-worth individuals use to manage their financial affairs.
"You cannot assess compliance among the nation's wealthiest individuals by looking only at their 1040s [tax returns]," Mr. Shulman said. "Our goal is to better understand the entire economic picture of the enterprise controlled by the wealthy individual and to assess the tax compliance of that overall enterprise."
- A premier law school that is unstinting in its commitment to excellence in teaching, the scholarship of its faculty, its academic and professional life, its formation of strong and ethical leaders, and its engagement in the world.
- A small law school that provides a close-knit and intimate educational environment, while drawing on the resources of a major research university to offer a rich curriculum and an array of opportunities usually found only at much larger institutions. A supportive and collaborative community that is marked by an outstanding student-faculty ratio, strong and enduring relationships between faculty and students, personalized attention and mentoring, limited-enrollment classes, and diverse opportunities for each and every student.
- An urban law school that draws great strength from its vigorous engagement with a classic American city rich with opportunities and challenges, benefiting from partnerships and exchanges with vibrant legal, corporate, and civic communities as well as from its position within a leading urban research institution.
- A public law school that holds true to its commitments and traditions, dedicated to diversity, opportunity, advancement, and civic responsibility. A law school that is faithful to the role that lawyers, the legal profession, and higher education have in providing civic leadership, and which is determined to bring the very best to and draw the very best from its community.
Our Dean has just published a progress report detailing the great strides we have made over the past three years toward this goal, as well as the work that remains to be done. Perhaps most exciting is the proposed new $70 million home for the law school, to be funded by the university and through our participation in the $1 billion Proudly Cincinnati campaign. Although many law schools, especially public law schools, are retrenching in the face of challenging economic times, we are thrilled that the University is providing the resources to hire additional faculty and staff to equip us to accomplish our big dreams. I hope those of you at the AALS Meat Market will check us out and consider joining us on this exciting journey.
The stars are aligning in a number of other ways to make this a particularly exhilarating time in Cincinnati -- including a great new university president (a former law school dean), Top 5 college football team, and first place NFL team. And my local church just added a fifth weekend service at its 3,500-seat auditorium as well as its first branch campus. Heck, even the weather is looking up!
Nancy A. McLaughlin has posted a number of her tax papers on SSRN:
- Amending and Terminating Perpetual Conservation Easements, 23 Prob. & Prop. 52 (2009)
- Protecting the Public Interest and Investment in Conservation: A Response to Professor Korngold's Critique of Conservation Easements, 2008 Utah L. Rev. 1561
- Could Coalbed Methane Be the Death of Conservation Easements?, 29 Wyoming Law. 18 (Oct. 2006)
- Conservation Easements -- A Troubled Adolescence, 26 J. Land, Resources & Envtl. L. 47 (2005)
- Questionable Conservation Easement Donations, 18 Prob. & Prop. 40 (2004)
- The Role of Land Trusts in Biodiversity Conservation on Private Lands, 38 Idaho L. Rev. 453 (2002)
The ABA’s accreditation standards focus on a number of issues, including schools’ facilities, student support services, faculty, admissions practices, and graduates’ passage of the bar exam. Concerns have been raised about how some of these accreditation standards may affect the cost of attendance and minority access. In 2007, we reported on the ABA’s process for accrediting law schools and questions that had been raised about the process. In this report, in response to a mandate in the Higher Education Opportunity Act, we examine the following questions: (1) How do law schools compare with similar professional schools in terms of cost and minority enrollment? (2) What factors, including accreditation, may affect the cost of law school? (3) What factors, including accreditation, may affect minority access to law school?
We briefed your staff on the results of our analysis on September 2 and 3, 2009, and this report formally conveys the information provided during that briefing (see appendix I for the briefing slides). In summary, we reported the following:
- Since 1994, tuition and fees at law schools and selected professional schools have increased, and trends in minority enrollment have been comparable across types of schools. At law, medical, and dental schools during this time period, Hispanics and Asians/Pacific Islanders increased as a share of enrollment or stayed at about the same level, while African American enrollment declined or stayed at about the same level.
- According to law school officials, the move to a more hands-on, resource-intensive approach to legal education and competition among schools for higher rankings appear to be the main factors driving the cost of law school, while ABA accreditation requirements appear to play a minor role. Additionally, officials at public law schools reported that recent decreases in state funding are a contributor to rising tuition at public schools.
- Most law school officials do not cite ABA accreditation standards as having an impact on minority access at their schools. Lower average Law School Admission Test (LSAT) scores and undergraduate grade point averages (GPA) may have negatively affected some African Americans and Hispanics.
- ABA Journal, GAO Puts Blame on US News Rankings for High Law School Tuition
- Above the Law, New Villain in Law School Debt Tragedy
- Chronicle of Higher Education, Law-School Cost Is Pushed Up by Quest for Prestige, Not Accreditation, GAO Survey Finds
- Huffington Post, While Law School Tuition Skyrockets, Government Student Loan Limits Remain Stagnant
- Inside Higher Ed, GAO Plays Down Accreditation's Role in Driving Up Law School Prices
- The Shark, More Rankings, More Problems: US News to Blame for High Tuition
- University of Chicago Faculty Blog, Law School Costs at the Margin
The Congressional Budget Office and Joint Committee on Taxation yesterday released a joint report, Subsidizing Infrastructure Investment with Tax-Preferred Bonds:
Subsidizing Infrastructure Investment with Tax-Preferred Bonds is a joint CBO/staff of the JCT study, which examines the types of tax preferences for state and local bonds, reports the amount of such debt that has been issued for infrastructure projects undertaken by the public and private sectors, and estimates the importance of that debt financing to infrastructure investment. The study also considers how the current system of tax preferences—which historically has relied primarily on tax exemptions for interest income on debt issued by states and localities—might change as a result of greater use of tax-credit bonds.
Benjamin Templin (Thomas Jefferson) has posted Comment on Neil H. Buchanan's Social Security and Government Deficits: When Should We Worry?, 92 Cornell L. Rev. 291 (2007), on SSRN. Here is the abstract:
(This comment responds to Neil H. Buchanan, Social Security and Government Deficits: When Should We Worry?, 92 Cornell L. Rev. 257 (2007). Professor Buchanan is not alone in questioning whether a Social Security funding crisis actually exists. Despite widely accepted predictions by the Social Security Administration, there is a small but growing cadre of respected scholars who are rightly skeptical of actuarial figures geared to motivate policymakers toward a certain political agenda. However, even if Professor Buchanan and others are correct that there is no funding crisis, does that preclude prudent policymakers from applying sound money management principles to invest the Social Security Trust Fund in higher-performing assets? Professor Buchanan prefers to maintain the status quo with regard to structural changes in Social Security financing, though he suggests that a more progressive Federal Insurance Contributions Act (FICA) tax would fulfill distributive justice objectives. These objectives are legitimate, but policymakers should couple any such strategy with a rethinking of how we invest the Social Security Trust Fund. The 1983 amendments to the Social Security Act, which created the current Trust Fund, transformed Social Security's financing from a purely nonfunded system to a partially funded system. If Professor Buchanan is right about the funding needs of Social Security, then an opportunity exists through prudent investment to move to a fully funded system without painful tax hikes or benefit cuts.
Monday, October 26, 2009
As Donald Tobin (Ohio State) has noted, it is more than strange that NYU has finished ahead of Florida and Georgetown each year that U.S. News has conducted the survey. Because the survey ranks the schools by how often they appear on the respondents' "Top 15" lists, this means that some folks list NYU, but not Florida and Georgetown, among the Top 15 tax programs.
In filling out your survey, you may want to consider various resources available on TaxProf Blog, including:
- Links to All 32 Graduate Tax Programs
- Tax Faculty Rankings
- Graduate Tax Faculty Rankings
- Tax Professor Rankings
- Tax Faculty Metropolitan Area Rankings
- Links to Tax Colloquia Workshop Series (left column of the blog)
Sarah Lawsky (George Washington) presents On the Edge: Declining Marginal Utility and Tax Policy at Loyola-L.A. today as part of its Tax Policy Colloquium Series. Thomas Griffith (USC) is the commentator. Here is the abstract:
Tax scholarship generally assumes that money has declining marginal utility (that is, that the next dollar is worth less to a wealthier person than to a poorer person). This assumption provides an easy justification for redistributive taxation. But the legal literature provides no firm grounding for the assumption of declining marginal utility. This article shows that while some evidence does support declining marginal utility, other evidence suggests that a significant number of people actually experience increasing marginal utility, at least over some range of wealth.
If some people’s marginal utility increases, a non-egalitarian efficiency analysis still supports redistribution, but not, or at least not only, from the rich to the poor: it also supports redistribution from (some) less wealthy people to (certain) wealthier people. A welfarist who finds rich-to-poor redistribution unpalatable could explicitly incorporate equality into his analysis (by, for example, adopting a social welfare function that somehow incorporates equality). Or he could continue to use a non-egalitarian approach and assume declining marginal utility, but also acknowledge that declining marginal utility is not a fact about the world, but rather a normative judgment: a rich person should value his next dollar less than a poorer person values her next dollar, whether or not he actually values it less.
For students completing tax seminar papers this semester: The Theodore Tannenwald, Jr. Foundation for Excellence in Tax Scholarship and American College of Tax Counsel are sponsoring the 2010 Tannenwald Writing Competition:
Named for the late Tax Court Judge Theodore Tannenwald, Jr., and designed to perpetuate his dedication to legal scholarship of the highest quality, the Tannenwald Writing Competition is open to all full- or part-time law school students, undergraduate or graduate. Papers on any federal or state tax-related topic may be submitted in accordance with the Competition Rules.
Cash Prizes: $5,000, $2,500 and $1,500 for the top three papers.
Deadline: 9:00 p.m. EST, July 1, 2010. Mail papers to: Tannenwald Foundation, Ste. 200, 1275 Pennsylvania Ave., N.W., Washington, D.C. 20004, attn: Melnie Moore.
For more information contact Nancy Abramowitz.