Sunday, July 25, 2010
- Government Loses Son-of-BOSS Tax Shelter Case (Apr. 24, 2008)
- WSJ: Tax-Shelter Users Get Some Rare Good News (June 4, 2008)
- 10th Circuit Hears Oral Argument Today in Sala Son-of-BOSS Tax Shelter Case (Nov. 16, 2009)
- IRS Burns Kirk Herbstreit's Donation of Home to Fire Department (July 24, 2009)
- IRS Denies Deduction for Homes Donated to Fire Departments and Burned Down (Sept. 26, 2009)
The U.S. District Court in Columbus, Ohio (Kirk Herbstreit's hometown) denied a couple's charitable contribution deduction for the house they donated to a suburban fire department that was demolished and the land returned to the couple (who built a larger home on the land) because they did not submit with their return a qualified appraisal or a contemporaneous acknowledgment of the donation from the city. Hendrix v. United States; No. 2:09-cv-00132 (S.D. OH July 21, 2010):
Plaintiffs had retained the accounting firm of Deloitte & Touche regarding a possible donation of the house to the city that would result in the city demolishing the structure and then returning the real estate back to Plaintiffs. In a March 2004 report, a Deloitte & Touche advisor analyzed the possible transaction and concluded, among other things, that “[d]onation of property to a fire department is aggressive and not explicitly sanctioned by the Internal Revenue Code.” ...
The city used the house from June 29, 2004, until October 29, 2004, at which time the house was demolished. Plaintiffs then proceeded to construct a new, larger house on their lot. Plaintiffs also reported a charitable contribution on their 2004 income tax return, claiming a deduction for the house in the amount of $287,400. The IRS disallowed the deduction and proceeded to assess a tax deficiency of $100,590. ...
The parties’ dispute presents four core issues, each of which is arguably potentially dispositive of this litigation. The first issue is whether Plaintiffs have met the requirement of submitting a sufficient qualified appraisal. The second issue is whether Plaintiffs filed a sufficient contemporaneous acknowledgment of the purported donation. The third issue is whether the Internal Revenue Code precludes a deduction for the conduct involved here. The fourth issue is whether Plaintiffs have otherwise established that they are entitled to a deduction. Because the first two of these issues prove dispositive, this Court need not and does not reach the remaining issues. ...
Ciardelli’s appraisal ... fails to constitute a “qualified appraisal.” ... The end result is that Plaintiffs are not entitled to the claimed deduction.
Plaintiffs contest this result, although they concede that their appraisal lacks several areas of content. They argue that they substantially complied with the regulations and statutory scheme, however, and point to components of the appraisal that did include required information. Defendant counters that it does not appear that the Sixth Circuit has recognized the substantial compliance doctrine in regard to taxpayer deductions and that, even if this Court were to assume that the doctrine could apply here, Plaintiffs have failed to demonstrate substantial compliance.
This Court agrees that the substantial compliance doctrine cannot salvage Plaintiffs’ case. Contemplated application of the doctrine in this Circuit to Internal Revenue Code provisions has previously arisen in the context of statutory language that specifically provides for substantial compliance. ... Assuming arguendo that the doctrine indeed could apply in such taxpayer actions, the Court finds that the appraisal at issue wholly lacks even a modicum of content in critical areas to say that it substantially complies with numerous statutory and regulation mandates. The substantial compliance doctrine is not a substitute for missing entire categories of content; rather, it is at most a means of accepting a nearly complete effort that has simply fallen short in regard to minor procedural errors or relatively unimportant clerical oversights. The required content Plaintiffs neglected does not constitute such instances of technicalities. ...
Plaintiffs’ appraisal is insufficient and precludes their claimed deduction. Additionally, even if this first ground did not resolve the litigation, the Court concludes that Defendant is still entitled to summary judgment under its second rationale: that Plaintiffs failed to file a contemporaneous acknowledgment as required by § 170. ... [B]ecause none of the documents produced in this case, including the June 29, 2004 contract between Plaintiffs and the city, satisfies § 170(f)(8)(B), Plaintiffs in turn have failed to avoid the § 170(f)(8)(A) bar on their claimed deduction.
Either of the foregoing grounds ends this litigation. Thus, as noted, the Court declines to reach the remaining moot issues involved in the parties’ dispute. The consequent result of the foregoing analysis is that, regardless of whether taxpayers may be able to claim a deduction for the type of donation involved in this case–a question this Court need not ultimately answer today–the deficient manner in which Plaintiffs pursued such a donation here proves dispositive. Defendant is therefore entitled to summary judgment, while Plaintiffs are not.
For more on this case, see Joe Kristan, Is Extreme Remodeling a Charitable Contribution? For more on the deductibility of homes donated to a local fire department, see:
- Scharf v. Commissioner, T.C. Memo 1973-265: "While we are confronted here with an exceedingly close question, we conclude under these particular circumstances that the benefit flowing back to petitioner, consisting of clearer land, was far less than the greater benefit flowing to the volunteer fire department's training and equipment testing operations. The Margolin building, even after razing, still was not completely cleared from the land. Petitioner needed to remove the debris, demolish the foundation and chimney and cover the land before he could market the property. We think the petitioner benefited only incidentally from the demolition of the building and that the community was primarily benefited in its fire control and prevention operations. Consequently, on balance, we hold that the petitioner is entitled to a charitable contribution deduction."
- ABA Tax Listserv
- Charitable Contribution Deductions - An Alternative to Capitalization of Demolition Costs
- Encyclopedia Britannica, Tax Aspects of Contributing a House to a Fire Department
- Forbes, Ultradeductible
- The Tax Adviser, Arson Is Not a Capital Offense
The House Ways and Means Committee conducted a hearing on July 22 to explore issues arising under current U.S. transfer pricing rules. Acting Ways and Means Chair Sander M. Levin, D-Mich., had said that the hearing was intended to help create a ‘‘tax code that enhances the competitiveness of our companies and is enforceable by the IRS.’’
This article suggests a way in which Congress might build on the hearing and accomplish the two important goals that Levin points to. The article argues that important elements of today’s transfer pricing rules have caused the rules to be unenforceable and that enforceability will require significant changes to current law. It also argues that enacting enforceable transfer pricing rules, without other compensating changes to the tax code, would result in a de facto corporate tax increase that could harm U.S. competitiveness. The only workable solution is for Congress to revise current transfer pricing rules in the course of comprehensive tax reform, so that the resulting effective tax rates on U.S. businesses can be controlled. This solution will require political compromise — recently a scarce commodity — but a balanced approach is necessary if the United States is to have international tax rules that are both competitive and enforceable.
All Tax Analysts content is available through the LexisNexis® services.
- Volokh Conspiracy (2, 3)
- Sentencing Law & Policy (7, 1)
- Prawfs Blawg (9, 5)
- Becker-Posner (10, 5)
- Technology Law & Marketing (17, 5)
Prior TaxProf Blog coverage:
- Law Prof Blog Ranking by Citation in Law Reviews (Feb. 22, 2008)
- Law Prof Blog Ranking by Citation by Courts (Feb. 24, 2008)
- NY Times: Who Ultimately Pays the Corporate Income Tax?
- Johnson & Aprill: Eliminate UBIT Exemption for ESOPs and Government Plans
- Tax Foundation Releases 2011 Tax Calculator With 3 Bush Tax Cut Scenarios
- Sanders: No to Oligarchy, Yes to Retroactive Estate Tax
- Top 5 Tax Paper Downloads
- ABA Considers Dramatic Changes This Weekend in Law School Accreditation Standards, Including Dilution of Tenure
- Gerzog: Morgens -- More QTIP Mischief
- Brookings: A VAT Is Part of the Solution
1. [557 Downloads] Social Security Benefits Formula 101: A Practical Primer, by Francine J. Lipman (Chapman) & James E. Williamson (San Diego State University, College of Business Administration)
3. [466 Downloads] An Overview of Tax Issues for Synagogues (and Other Religious Congregations), by Ellen P. Aprill (Loyola-L.A.)
4. [411 Downloads] Taking a Sack: The NFL and its Undeserved Tax-Exempt Status, by Andrew B. Delaney (J.D. 2010, Vermont)
5. [336 Downloads] 2009 Developments in Connecticut Estate and Probate Law, by John R. Ivimey (Reid and Riege, Hartford) & Jeffrey A. Cooper (Quinnipiac)
ABA Considers Dramatic Changes This Weekend in Law School Accreditation Standards, Including Dilution of Tenure
- July 2010 Meeting Agenda
- Standards 301-307: Student Learning Outcomes
- Chapter 2: Governance Standards
- Chapter 2: Governance Standards (redline to current Standards)
- Draft Memo of Transmittal for Facilities Standards
- Chapter 5
- Chapter 7
- Faculty Qualifications
- Academic Freedom
- Library and Information Resources
The Clinical Legal Education Association accuses the committee of sandbagging the process by posting some of the material only three days in advance of the meeting:
I write for the executive committee of the Clinical Legal Education Association (CLEA) to express our concerns regarding the document entitled “Draft, Security of Position, Academic Freedom, and Attract and Retain Faculty” dated July 15, 2010, which was posted on the web site of the Standards Review Committee on July 20, only three days in advance of the Committee’s meeting to begin to discuss the issues it raises. This “Draft” proposes the elimination of the longstanding provisions in Standard 405 addressing tenure and other forms of security of position for law faculty.
First, it is troubling that this proposal, which raises issues that are fundamental to the structure of legal education, is posted so late that interested persons and organizations cannot provide comments prior to the Committee beginning its deliberations on those issues. ...[T]here are many stakeholders who are deeply interested in the issues raised by this document. Indeed, they are so concerned that, even in advance of receiving the July 15 “Draft,” many have provided the Committee with their views. These include the Association of American Law Schools, the American Association of University Professors, the Society of American Law Teachers, and over a dozen law school deans and university presidents. None of their viewpoints is so much as referenced in the “Draft” and none of them have had the opportunity to comment on it. We hope that the discussion of these issues will proceed from now on with more notice of the Committee’s discussion documents, more clarity regarding the sponsorship of proposed changes in the standards, and more precision regarding the sources for the proposed changes.
Here are the documents submitted in reponse to the proposed dilution of tenure and job security:
- Gary Palm (Sept. 2008)
- University Presidents (Apr. 2009)
- AALS Task Force Report on Status of Clinical Faculty in the Legal Academy (June 2010)
- CLEA: History of Standard 405c, cover letter (June 2010)
- CLEA: History of Standard 405c (June 2010)
- AAUP: Security of Position (July 2010)
- ABA Section of Legal Education & Admissions to the Bar's Law Libraries Committee (July 2010)
- Gorman: Security of Position (July 2010)
- Rabban Letter of Endorsement of Gorman Letter (July 2010)
- Statement of 12 AALS Presidents Supporting Gorman Letter (July 2010)
- SALT (July 2010)
- Security of Position: Goldman (July 2010)
- CLEA Letter to Polden-Barry re handling of July 15 draft (July 2010)
For more, see Best Practices for Legal Education:
- For July ABA Meeting: CLEA Concludes Proposed Accreditation Revisions “Diminishes Legal Education”
- What Constitutes “Substantial Opportunities” [for Real-Life Practical Experiences]?
- ABA Standards Review Continues to Spark Robust Discussion and Strong Comments
- ABA Posts Last Minute Drastic Revisions to Academic Freedom Standards
- More Proposed Revisions: Faculty Responsibilities Emphasizes Teaching, Assessment, & Indicidual Mission
In [Estate of Morgens v. Commissioner,133 T.C. No. 17 (Dec. 21, 2009)], the court ruled in favor of the government that § 2035(b) applied to the gift taxes paid by the qualified terminable interest property (QTIP) trust beneficiaries to gross up the widow’s estate by that amount. Because the surviving (or donee) spouse must be taxed on the underlying property over which she has no ownership rights, Congress enacted § 2207A to allow the second spouse to recover from the beneficiaries of the property the transfer taxes relating to her gift or estate inclusion. However, the court held that § 2207A did not shift the gift tax liability to those beneficiaries to exempt the widow’s estate from the application of § 2035(b).
The Tax Policy Center has published A Value-Added Tax for the United States: Part of the Solution, by William G. Gale & Benjamin H. Harris. Here is the abstract:
The U.S. faces a large medium-term federal budget deficit and an unsustainable long-term fiscal gap. Left unattended, these shortfalls will hobble and eventually cripple the economy. The only plausible way to close the gap is through a combination of spending cuts and/or tax increases. This paper discusses why a federal Value Added Tax (VAT) should be part of a constructive solution to the fiscal problem.
Saturday, July 24, 2010
(Hat Tip: Scott Brenner.)
I ended last week’s post by asking whether anyone knows which human beings ultimately pay the corporate income tax.
An intuitively appealing answer is that the tax is levied on profits, which are a return on capital invested in a corporation. Therefore, those who made that investment — the shareholders — absorb the tax fully in the form of a lower after-tax return on their investments.
That impression would be reinforced by the short-run, partial-equilibrium model of the individual company that we sometimes trot out in freshman economics courses.
In the partial-equilibrium model, the company’s capital stock is assumed to be fixed in the short run. Imposing or raising a tax on the profits will not change the company’s decisions on prices and production, because to maximize after-tax profits the company would take the same steps as to maximize pretax profits.
But economics professors quickly add that all bets are off in the longer run, when the company’s capital stock relative to the input of labor can change and when the owners of investable funds can decide whether to invest their money at home or abroad or in enterprises not subject to corporate taxation. ...
So, given that even economists cannot agree on who actually bears the burden of the corporate income tax, why not abolish the tax altogether and instead tax human beings directly? The arguments against such a move are twofold.
First, even bringing in only 12% or so of total federal taxes, the corporate income tax represents the third-largest source of federal revenue and could not easily be replaced with an alternative source, especially in these times of fiscal pressures.
Second, if the profits of corporations were not taxed, the corporate form of enterprise would become one more major tax shelter through which wealthy people could shield their income from taxation. That probably is the main reason why abolishing the corporate tax has never had any political traction, in the United States or abroad.
Calvin H. Johnson (Texas) & Ellen P. Aprill (Loyola-L.A.) have published UBIT to the Defense! ESOPs and Government Entities, 128 Tax Notes 317 (July 19, 2010). Here is the abstract:
The unrelated business income tax is imposed on otherwise exempt organizations to prevent the shifting of business assets to exempt entities. Entities that are exempt (or believe they are exempt) from UBIT have recently acted as accommodation parties in transactions, allowing high-rate taxpayers to avoid tax on economic income that those taxpayers own in substance. This proposal would end the UBIT exemption for employee stock ownership plans, governmental pension funds, and other governmental affiliates.
All Tax Analysts content is available through the LexisNexis® services.
- All the Bush tax cuts expire completely at the end of this year
- All the Bush tax cuts are extended into 2011 or made permanent
- President Obama's budget is adopted, which includes a combination of expirations and extensions of the Bush tax cuts.
Below the fold are the Tax Foundation's 13 FAQs on the Bush tax cuts:
Friday, July 23, 2010
(Hat Tip: Frank Pasquale.)
[N]ot content with huge tax breaks on their income; not content with massive corporate tax loopholes; not content with trade laws enabling them to outsource the jobs of millions of American workers to low-wage countries and not content with tax havens around the world, the ruling elite and their lobbyists are working feverishly to either eliminate the estate tax or substantially lower it. If they are successful at wiping out the estate tax, as they came close to doing in 2006 with every Republican but two voting to do, it would increase the national debt by over $1 trillion during a ten-year period. At a time when we already have a $13 trillion debt, enormous unmet needs and the highest level of wealth inequality in the industrialized world, it is simply obscene to provide more tax breaks to multi-millionaires and billionaires.
That is why I have introduced the Responsible Estate Tax Act (S.3533). This legislation would raise $318 billion over the next decade by establishing a graduated inheritance tax on estates over $3.5 million retroactive to this year. This bill ensures that the wealthiest 0.3% of Americans pays their fair share of estate taxes, while making sure that 99.7% of Americans never have to pay a dime when they lose a loved one. It also makes certain that the overwhelming majority of family farmers and small businesses never have to pay an estate tax.
This legislation must be passed because, with a $13 trillion national debt and huge unmet needs, we cannot afford more tax breaks for millionaire and billionaire families. But even more importantly, it must be passed because the United States must not become an oligarchy in which a handful of wealthy and powerful families control the destiny of our nation. Too many people, from the inception of this country, have struggled and died to maintain our democratic vision. We owe it to them and to our children to maintain it.
This week, we wrote about a student at the University of San Diego School of Law who debated whether to risk having to miss some sessions of his tax law class—a class for which he knew attendance counted toward the grade—to participate in the World Series of Poker. The professor of the class, Paul Caron, reported on TaxProf Blog that the student went to the tournament and ultimately won $24,000, "which presumably took the sting out of missing three of my classes."
What we'd like to hear from you: Have you ever made a conscious choice to skip a law class and had that decision bring excellent or disappointing results? ... Answer in the comments.
The Association for Legal Career Professionals (NALP) yesterday released employment data on the law school class of 2009:
- Press Release
- Jobs & JDs: Employment and Salaries of New Law Graduates — Class of 2009
- Employment for the Class of 2009 — Selected Findings
- Salary Distribution Curve for the Class of 2009 Shows Relatively Few Salaries Were Close to the Mean
- William D. Henderson (Indiana-Bloomington), The Class of 2009: Recession or Restructuring?
- ABA Journal, 25% of 2009 Grads in Temp Jobs; Few Actually Earn $72K Pay Median, NALP Says
- Above the Law, NALP Gives More Information on Expected Lawyer Salary
- American Lawyer, More NALP Numbers Show a Frozen Legal Market
- JD Journal, Employment Down, Salaries Hold for Law Grads
- National Law Journal, NALP: Fewer Legal Jobs, But Pay Holding Steady
- Wall Street Journal Law Blog, NALP: Law Graduate Salaries Steady. . . But There Are Caveats
Update: National Review, Game-Changer?, by Larry Kudlow
There's nothing like the prospect of an electoral rout to concentrate the incumbent mind, and so all of a sudden rank-and-file Democrats in Congress are saying maybe they shouldn't let the 2003 tax rates expire after all. Now if they can only persuade their Speaker of the House, the Treasury Secretary and President Obama. ...
The economic recovery is far from robust, and socking it with one of the largest tax increases in history in January is not going to make anyone more eager to invest or create new jobs. ... Only in the age of Obama have Democrats convinced themselves that the best "stimulus" is higher spending and higher taxes.
The nearby table shows how tax rates are scheduled to jump on January 1. Democratic leaders say they want to preserve the lower rates on individuals making less than $200,000, but that still means raising them on the Americans most likely to take the risks that spur economic growth. ... The reality is that the increase in the top marginal income tax rate to higher than 41% will hit the most profitable small businesses especially hard. That's because millions of business owners pay individual rates under Subchapter S of the tax code. Today, this means they pay the same top rate as the Fortune 500: 35%. But if the 2003 tax rates expire, they'll suddenly pay more than Goldman Sachs.
Sen. John Kerry, who has repeatedly voted to raise taxes while in Congress, dodged a whopping six-figure state tax bill on his new multimillion-dollar yacht by mooring her in Newport, R.I.
Kerry’s luxe, 76-foot New Zealand-built Friendship sloop with an Edwardian-style, glossy varnished teak interior, two VIP main cabins and a pilothouse fitted with a wet bar and cold wine storage -- was designed by Rhode Island boat designer Ted Fontaine.
But instead of berthing the vessel in Nantucket, where the senator summers with the missus, Teresa Heinz, Isabel’s hailing port is listed as “Newport” on her stern.
Could the reason be that the Ocean State repealed its Boat Sales and Use Tax back in 1993, making the tiny state to the south a haven -- like the Cayman Islands, Bermuda and Nassau -- for tax-skirting luxury yacht owners?
Cash-strapped Massachusetts still collects a 6.25% sales tax and an annual excise tax on yachts. Sources say Isabel sold for something in the neighborhood of $7 million, meaning Kerry saved approximately $437,500 in sales tax and an annual excise tax of about $70,000.
Tax Court Rejects Billionaire Anschutz's Use of Variable Prepaid Forward Contracts to Avoid $144m Capital Gain
The Tax Court yesterday disallowed billionaire Philip Anschutz's use of variable prepaid forward contracts with Donaldson, Lufkin & Jenrette to avoid $144 million in capital gains taxes. Anschutz Co. v. Commissioner, 135 T.C. No. 5 (July 22, 2010).
- Bloomberg, Billionaire Anschutz Loses Capital Gains Ruling Over $144 Million Tax Bill
- Forbes, Billionaire Anschutz Loses Big Tax Case
- Wall Street Journal, Anschutz Loses Tax Court Decision
Andre L. Smith & Carlton Waterhouse (both of Florida International) have published No Reparation Without Taxation: Applying the Internal Revenue Code to the Concept of Reparations for Slavery and Segregation, 7 Pitt. Tax Rev. 158 (2010). Here is the abstract:
In the article, Professors Andre Smith and Carlton Waterhouse explore the interesting and rich relationship between reparations and the tax law scholarship. Employing a rich dialogical style, the authors move fluidly between the theoretical and practical aspects of both reparations and tax law in a way that brings both areas of research together. Beyond the slavery reparations tax scams of the earlier part of the decade, the authors reveal an intriguing and important relationship between reparations and the United States tax code previously unexplored. The authors accomplish this in two distinct ways. They begin with an examination of reparations proposals for America’s legacy of slavery that range from individual monetary compensation to the creation of educational and other trust funds for beneficiaries. For each of the proposals considered the authors assess the tax consequences of the particular form of reparations proposed. Drawing on earlier research published by Professor Waterhouse, the authors consider a reparations program of institutional development within Black communities – with or without government support – that calls on African Americans and others to pool their resource to repair the harms of slavery and segregation. In this section, the authors discuss the laws of tax exemption and charitable organizations and whether tax exempt status may be conferred upon organizations whose stated goals are to repair the community of a particular race. Here, the article extends the work of David Brennan, in Race and Equality Across the Law School Curriculum: The Law of Tax Exemption, in which he asks whether a non-profit organization can keep its § 501(C)(3) status if it restricts its grant making, hiring and board membership based on race. The article’s second major contribution is an intriguing investigation of the tax code as a viable mechanism for providing governmental reparations. They find that using tax benefits such as credits, deductions, exclusions and exemptions the tax code can provide an effective and efficient system for distributing governmental reparations to intended beneficiaries.
Will you be toasting to low taxes in 2011? Or drowning your sorrows, knowing that you’re about to get hit with a higher bill from Uncle Sam? Sometime before New Year’s Eve, Congress will need to answer those questions. That’s because many provisions of the 2001 tax law, which lowered income tax rates, expire on Dec. 31. ...
“The expiration of the 2001 and 2003 tax cuts is the most significant event in tax policy in generations,” said Scott Hodge, president of the Tax Foundation. “I’m hard pressed to think of another moment in the history of the tax code in which we have had so many provisions expire at the same time impacting so many Americans all at once.” ...
“It would not shock me that they would not be able to get their act together” to extend some of the 2001 tax rates, said veteran tax lawyer and lobbyist Ken Kies, who formerly served as the chief of staff to the Congressional Joint Committee on Taxation. ...
Len Burman, a respected tax policy wonk who served as a Treasury Department official in the Clinton administration, told Baucus’s committee last week that “it is a good idea to extend most of the expiring tax cuts,” but not the ones for upper-income people. He said, “I think there would be relatively little cost to letting the high-end tax cuts sunset as scheduled.” ...
“An under-reported story is the economic havoc that will occur if the tax on dividends increases from 15 percent to 36 percent (for those earning less than $250,000) and 39.6 percent (for those earning more than $250,000),” said Paul Caron, who publishes the TaxProf blog and teaches tax law at the University of Cincinnati law school. “Many Americans, not just the wealthy, receive dividends, such as through mutual funds,” he said.
Thursday, July 22, 2010
The IRS must take additional steps to ensure that accuracy-related penalties are appropriately considered when assessing correspondence audits. ...
A TIGTA review of 229 correspondence audits closed in Fiscal Year 2008 found that 211 (92%) of the audits were not considered and assessed in accordance with IRS procedures for accuracy-related penalties. ... Appropriately assessing this penalty would have resulted in estimated increased revenues of $3.5 million.
This article briefly traces the history of tax sheltering in the latter half of the twentieth century in the United States, including the transformation of the role of tax professionals from support functions in tax planning for transactional efficiency to profit center functions through aggressive tax structuring. The article addresses general anti-avoidance rules as evidence of the prevalence of intensive outside the United States and works in greater detail with Swedish and German aggressive tax planning.
The article argues that over the past half century or longer, multiple factors have contributed to and fused into a culture of tax avoidance. Congress and other legislatures have fueled and continue to fuel the growth of that tax avoidance culture by relying on the taxation system to deliver a variety of tax unrelated subsidies and economic stimuli and, in some cases, to drive social policy.
That reliance confuses taxpayers concerning the function of taxation, the nature and importance of governmental services, and taxpayers’ own tax compliance obligations. In the presence of that culture, legislatures and national executives lack the political will to adopt those proposals that actually might minimize or even eliminate the tax avoidance problem. Rather the legislatures and executives settle on political compromises that have their own flaws and produce only limited corrective results, like general anti-avoidance rules as an example. The article concludes that the cultural change essential to provide the political resolve to quell tax avoidance includes suppressing collateral, non-revenue collection uses of the taxation system like delivering subsidies and economic stimuli or driving social policy. To bring about cultural change a substantial increase in enforcement is critical as is a massive education effort to overcome ever growing anti-tax rhetoric.
This paper investigates the impact of tax changes on economic activity. We use the narrative record, such as presidential speeches and Congressional reports, to identify the size, timing, and principal motivation for all major postwar tax policy actions. This analysis allows us to separate legislated changes into those taken for reasons related to prospective economic conditions and those taken for more exogenous reasons. The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes.
Leno is not making this up -- although "MoFo" is slang for motherf*****, Morrison & Foerster goes out of its way to embrace MoFo as its brand -- the firm's home page (www.mofo.com) proudly declares in large, bold type:
This is MoFo.
Following up on my prior post, After Denying Insurance Mandate Was a Tax, Obama Now Defends Constitutionality of Health Care as Exercise of Taxing Power: Wall Street op-ed, Why the ObamaCare Tax Penalty Is Unconstitutional, by J. Kenneth Blackwell & Kenneth A. Klukowski:
The Justice Department announced last week that it would defend the new federal health-insurance mandate as an exercise of Congress's "power to lay and collect taxes," even though Barack Obama had insisted before the bill's passage that it was "absolutely not a tax increase." The truth is the mandate is not a tax—and if it were it would be unconstitutional. ...
The Taxing and Spending Clause in Article I of the Constitution gives the federal government broad power to tax the American people. But that power is not unlimited.
The Constitution originally allowed only three types of taxes. The first was a duty, which is a tax on imports. The second was an excise tax, which is a tax for the privilege of doing something, such as buying alcohol or holding a professional license to practice law. Both duties and excise taxes are indirect taxes that can be passed on to consumers.
The third type of tax was a direct tax, which cannot be passed on to someone else. The only type of direct tax permitted by the Constitution was a "capitation tax," or head tax, which every person could be required to pay. The Constitution required that any capitation tax be apportioned, meaning that every person in a given state had to pay the same amount. ...
When Congress created an income tax in the late 1800s, the Supreme Court struck it down on the grounds that it was a direct tax but not apportioned. That 1895 decision, Pollock v. Farmers' Loan & Trust, rejected the idea that Congress had some generic power to tax outside the three categories laid out in the Constitution.
That's why, in 1913, the 16th Amendment to the Constitution was required in order to institute a national income tax. Since then, a tax on income has been the fourth and final type that the federal government can impose.
The individual health-insurance mandate fits into none of these four categories and is therefore not constitutionally justified as a tax.
- Uncertain Tax Positions: The Dilemma, by Danielle E. Rolfes, John Lovelace & David D. Sherwood (all of Irvins, Phillips & Barker, Washington, D.C.)
- Economic Substance and Cross Border Transaction Planning, Gary R. Vogel (Ernst & Young, Washington, D.C.)
- Recent Developments Affecting Section 382, by Todd B. Reinstein (Pepper Hamilton, Washington, D.C.)
U.S. News & World Report and Kaplan Test Prep and Admissions are offering a free webinar today at 9:00 p.m. EST on Inside the Law School Rankings, hosted by Robert Morse, Director of Data Research at U.S. News. For more information, see Morse Code.
- Meredith Conway (Suffolk), An Analysis of and Proposal for Corporate Tax Integration
- Lilian V. Faulhaber (Boston University), The Network of Tax Litigation: An Empirical Study of the Written Decisions of the United States Tax Court
Former Treasury Secretary Robert Rubin, Tiger Management LLC Founder Julian Robertson and an heir of Walt Disney urged Congress to reinstate a tax on multimillion-dollar estates, possibly retroactively.
The three were joined by AFL-CIO President Richard Trumka today to support efforts by a Boston-based advocacy group, United for a Fair Economy, pressing lawmakers to act before Congress adjourns for a month-long recess in August.
The deaths of New York Yankees owner George Steinbrenner and at least three other billionaires this year has focused attention on the absence of the levy, which lapsed Jan. 1. Had they died in 2009, they would have paid as much as 45 percent on much of their estate, depending on how their wills were structured.
“We should restore the estate tax in its entirety, and restore it now,” Rubin, who was Treasury secretary under President Bill Clinton, said on a conference call with reporters. He said making the tax retroactive to cover all of 2010 “should be very seriously considered.”
- United for a Fair Economy, Press Release
- United for a Fair Economy, Podcast of July 21 Teleconference
- Business Insider, Julian Robertson And Robert Rubin DON'T Want Tax Incentive That Allows Their Heirs To Inherit Fortunes Tax-Free
- CNN, Super Rich: Tax My Estate, Please
- Forbes, Billionaires Battle on Estate Tax
- Future of Capitalism, Robert Rubin, Abigail Disney, and Julian Robertson on Estate Tax
- The Hill, Rivals in Estate Tax Fight Are Calling on Lawmakers to Move on Restoration
- MarketWatch, Bring Back the Estate Tax, Some Rich Americans Say
- Newsweek, Restore the Estate Tax!
- Reuters, Rubin, Robertson Want U.S. Estate Tax Reinstated
- Wall Street Journal, Ex-Treasury Secretary Rubin Calls For Prompt Return Of Estate Tax
A former IRS tax specialist admitted in federal court in Maryland that he owes more than $789,000 in overdue taxes, federal authorities said.
John Venuti, 62, of Harwood, Md, pleaded guilty Tuesday in U.S. District Court in Baltimore to three counts of failing to file a federal income tax return, according to the U.S. Attorney's Office in Maryland.
Venuti worked at the accounting firm KPMG LLP from 2002 until January as a tax consultant and principal, court documents state. He worked for the IRS from 1974 to 1983, including three years during which he was chief of the Tax Treaty and Technical Services Division.
Wednesday, July 21, 2010
The Joint Committee on Taxation has released Present Law and Background Related to Possible Income Shifting and Transfer Pricing (JCX-37-10):
The United States has a global system of taxation such that domestic corporations are taxed on their worldwide income, although the foreign tax credit prevents double taxation. Active foreign business income can be eligible for deferral from current taxation, subject to certain rules, until the earnings are repatriated to the United States. One set of rules in the Internal Revenue Code applying to multinational corporations is the transfer pricing rules, which applies to both domestic and foreign corporations (§ 482). Transfer pricing is the price one company charges a related entity for the transfer of goods or services. The principle measurement used in determining whether the price is appropriate is the arm’s length standard, as if the transferring party was unrelated to the transferee. The Code permits the IRS to adjust deductions or credits between affiliated entities in order to prevent the evasion of taxes.
U.S. multinationals have continued to grow in the global marketplace, which poses greater challenges for the tax enforcement agencies. In 2004, the Ways and Means Committee requested the Treasury Department study the effectiveness of the current rules on transfer pricing to “ensure that income is not being shifted outside of the United States.” (H. Report 108-458, enacted as part of the American Jobs Creation Act of 2004, Pub. L 108-357). In 2007, Treasury reported on the effectiveness of the regulations, rules, and compliance efforts and did find some potential for income shifting, particularly with respect to cost-sharing arrangements involving intangibles. (Report to the Congress on Earnings Stripping, Transfer Pricing, and U.S. Income Tax Treaties, U.S. Department of Treasury, November 2007). Treasury recommended specifically that the rules and regulations be revised and updated.
More recently, the President’s FY 2011 budget proposal contained two proposals on transfer pricing, citing “evidence indicating that income shifting through transfers of intangibles to low-taxed affiliates has resulted in a significant erosion of the U.S. tax base.” One proposal would tax excessive returns when intangibles are transferred from the U.S. to a related entity in a low-tax jurisdiction. The other would broaden the definition of intangible property for purposes of § 367(d) and § 482 and provide the IRS would greater authority in making valuations.
The transfer pricing rules have been updated and modified many times over the last decade, yet still foster controversy. Pursuant to these concerns, the Committee requested that the Joint Committee on Taxation (JCT) study and report back on the issue of income shifting and transfer pricing. As part of background material for the hearing, the JCT will provide a summary of ongoing work, containing a discussion of the issues as well as case studies, which will be a focus of this hearing.
This document ... includes a background discussion of business restructuring, a description of past and present law relevant to the studies, and six case studies of U.S.-based multinational corporations and how the business structure of those corporations interacts with the Internal Revenue Code to determine the corporation’s U.S. tax liability.
Here are the witnesses scheduled to testify:
- Stephen E. Shay (Deputy Assistant Secretary for International Tax Affairs, U.S. Treasury Department)
- Tom Barthold (Chief of Staff, Joint Committee on Taxation)
- Martin A. Sullivan (Tax Analysts)
- R. William Morgan (Managing Director, Horst Frisch Inc.)
- Reuven Avi-Yonah (Professor, University of Michigan School of Law)
- James R. Hines Jr. (Professor, University of Michigan School of Law)
Facebook plans to announce it has reached a milestone 500 million users this week — but that doesn’t mean the masses are happy customers.
The result: Facebook came out with one of the lowest ranks of any company measured by the Index – a 64 out of 100. That puts Facebook in the bottom 5% of all private sector companies, and in the same range as the IRS tax e-filing system, airlines and cable companies.
The director of the Joint Committee on Taxation, Thomas Barthold, takes us to task in a nearby letter for exaggerating the revenue impact and economic benefits of the investment tax cuts of 2003. (See The Obama Tax Trap, July 2.) This is a debate we're delighted to have, and Members of Congress should want to have it too if they ever want to cut taxes again.
Because Mr. Barthold and his revenue oracles are among the most powerful people in Washington on tax policy, it's worth reviewing whether Joint Tax estimates are accurate. This is especially important now, because President Obama and Democrats in Congress want to allow the 2003 tax cuts to expire on January 1 for individuals earning more than $200,000. The JCT calculates that increasing the tax rates on capital gains, dividends and personal income will raise nearly $100 billion a year.
Mr. Barthold scolds us for saying the JCT assumes "no" change in economic behavior in estimating future revenues from tax rate changes, and he has us there. We should have used "little" instead of "no." On capital gains, for example, Joint Tax did change its methodology a few years back to take into account that more people will sell stocks when the tax rate falls. Here and there, it takes account of other narrow behavioral effects of tax changes.
But Mr. Barthold is also giving his gnomes far too much credit for dynamic scoring, and thinking. What they don't do is assume much if any macroeconomic effect from lower tax rates, and they often underestimate the real world behavioral responses by businesses, investors and workers. Consider a few examples: ...
Estimating future federal tax revenues is an inexact science to be sure. Our complaint is that Joint Tax typically overestimates the revenue gains from raising tax rates, while overestimating the revenue losses from tax rate cuts. This leads to a policy bias in favor of higher tax rates, which is precisely what liberal Democrats wanted when they created the Joint Tax Committee. One of the GOP's biggest mistakes the last time it controlled Congress was not doing more to take intellectual control over both Joint Tax and CBO.
Joint Tax now says that rescinding the Bush investment tax cuts will raise about $500 billion in revenue over the next five years. So on January 1 we will enact one of the largest tax increases in history, coming out of one of the deepest recessions in a century, because computer models that we know are wrong are telling Congress that this will raise far more revenue than the increases will raise in reality.
If Members of Congress are going to buy this, they should simply cut out the 535 middlemen and let Mr. Barthold write the tax laws.
2010 is the only year since 1916 in which heirs to an estate will not have to pay the dreaded death tax. Victory for small businesses? Not yet—due to a legal quirk, the death tax is scheduled to come back to life in 2011. Studies, statistics, and real life have shown again and again that the businesses and families burdened with the death tax often see themselves forced to cut back on benefits, investments, and employees. The death tax keeps new jobs from being created, hurting not just the affected businesses, but the economy as a whole. Because it is a tax on capital, the death tax destroys as many as 1.5 million jobs that the economy needs as it struggles to recover. Heritage Foundation tax policy expert Curtis Dubay details a replacement for the death tax, and explains why Congress must kill the death tax—now.
Here we go again. Another legislative session, another well-funded campaign waged by Intuit Corp. to abolish California's free, innovative and wildly popular electronic tax filing programs, ReadyReturn and CalFile.
Who makes international tax policy in today’s world? Certainly no single body possesses that power – there is no global tax authority, and states are not capable of achieving all of their international tax policy goals on a unilateral basis. The development of international tax policy is an interactive and dynamic process that involves a wide range of players, most of whom can be characterized as international organizations. Their roles, goals, tools and influence vary by organization and by issue, but their net impact on tax policy is undeniable. If we are to better understand how tax policy is formed, we must examine the role of these organizations. Although the power of international organizations has received significant attention outside the tax field, less attention has been devoted to these mechanisms in tax policy. This article joins a dialogue that seeks to bring the same depth of analysis to the study of international tax policy. Specifically, this article contends that international organizations play different and complex roles in shaping tax policy. First, this article establishes four empirical dimensions along which each relevant organization should be examined. Second, this article moves the analysis to the next level of inquiry by articulating ways to capture the dynamic interactions among these players as they participate in shaping international tax policy. Two case studies provide an initial opportunity to assess those interactions. Finally, the paper offers some preliminary observations about certain types of international organizations and their particular role in tax policy.
Following up on my recent posts:
- IRS Seeks to Treat Nursing Home Entrance Fees as Taxable Pre-Paid Rent, Not Tax-Free Interest-Free Loans (June 4, 2010)
- Tax Court Petition in Nursing Home Entrance Fee Case (June 4, 2010)
- IRS Backs Down on Tax Treatment of Retirement Community Entrance Fees (July 8, 2010)
Wall Street Journal, IRS Erred in High-Stakes Tax Case, by John R. Emshwiller:
The IRS said it made a more than $325 million error in a high-stakes tax battle with Vi, an operator of upscale retirement communities. The company recently changed its name from Classic Residence by Hyatt.
The IRS disclosure, made in a recent federal tax court filing, appears to end the agency's effort to collect more than $128 million in back taxes and penalties from the company. The agency's reversal came even though it continued to defend its underlying position: that so-called "entrance fees" paid by incoming retirement-community residents can be treated as taxable income.
Vi maintains that because a large portion—in some cases over 90%—of many entrance fees is refundable when a resident leaves or dies, the returnable parts of the payments are actually interest-free loans and not taxable.
Legislation has been introduced in the House and is being discussed in the Senate that would provide tax relief to the Gulf Coast oil spill victims. The Oil Spill Tax Relief Act of 2010 (H.R. 5598) would require that any compensation provided by BP to an oil spill victim be treated as a qualified disaster payment, and thereby excluded from gross income for tax purposes. The Gulf Coast Access to Savings Act of 2010 (H.R. 5602) would allow for enhanced access to retirement savings. The Gulf Oil Spill Recovery Act of 2010 (H.R. 5699) would make various tax relief measures available to businesses and individuals. Senate discussions include proposals similar to what has been introduced in the House, as well as a tax holiday for tourism-related activities.
Conceptually, deferred compensation is composed of compensation and investment components. Current law adequately taxes the compensation component, but it fails to tax the investment component, creating tax-planning opportunities and all the efficiency and distributive problems that ensue. The remedy is to tax the investment component, achieved by imposing a “special tax” upon employers when they pay deferred compensation.
The special tax proposed in this Article is focused on the taxation of the employer. In another article, this Author proposed a modest reform for the taxation of the employee under which the employee would always pay tax on deferred compensation at the highest marginal tax rate, thereby avoiding the problem of deferring compensation from high- to low-bracket tax years. [Deferred Compensation Reform: Taxing The Fruit of the Tree in Its Proper Season, 67 Ohio St. L.J. 347 (2006)] These two proposals (the special rate for employees and the special tax on employers) would effectively neutralize any tax advantage for deferred compensation.
Negating the tax advantages of deferral has not, however, been the goal of past legislation. Section 409A, as described above, negates no advantage of deferral. Instead, § 409A simply narrows the field of compensation contracts that can actually achieve deferral. The complexity of § 409A is well known, as is the fact that it fails to achieve any discernable tax or non-tax policy. Thus, the additional tax proposed in this Article need not be an additional burden on employers who maintain deferred compensation plans, as future reforms should eliminate not only the tax advantages of deferred compensation, but its unnecessary regulation as well.
Are tax planning methods patentable? This question has concerned tax practitioners for years. Tax patents are part of a broader group known as business method patents. On June 28, 2010, the U.S. Supreme Court handed down its long-awaited decision in Bilski v. Kappos. The case addressed whether certain hedging strategies -- arguably, a type of business method -- could be patented. The Court ruled unanimously that they were not patentable. The majority opinion, rejecting the test used below by the Court of Appeals for the Federal Circuit, concluded on the basis of long-standing Supreme Court precedent that the patent claims at issue represented mere abstract ideas. The majority, however, did not foreclose the possibility that some business methods may be patentable, leaving open the question of whether tax planning methods are patentable.
This program will explore the Bilski case and its implications for tax strategy patents. The history of business method patents will be examined. The subject will be considered from the perspectives of both tax professionals and intellectual property lawyers. Panelists will address possible future judicial developments and how the U.S. Patent and Trademark Office may respond to Bilski. Finally, potential Congressional legislative reactions will be discussed.
- Dennis B. Drapkin (Jones Day, Dallas) (moderator)
- Ellen P. Aprill (Loyola-L.A.)
- Barry L. Grossman (Foley & Lardner, Milwaukee)
- Matthew T. Young (Director, AICPA Congressional and Political Affairs)
Tuesday, July 20, 2010
Tax Court: Gambling Only on Their 'Lucky Days' Per Feng Shui Principles Made Couple Professional Gamblers
Before petitioner’s decision to become a professional gambler, petitioners had been casual gamblers but they did not wager large amounts. Sometime during 2005 petitioners began to invest heavily in gambling (mainly playing slot machines). Petitioners were born in Vietnam, and their religious and cultural beliefs were derived from their Vietnamese background. They believed in Feng Shui. Because of this belief and other religious and cultural beliefs, they expected that certain days were “lucky days” or days on which their chances of successful gambling increased. They were cognizant that slot machine odds favored the casinos but expected to overcome those odds by attempting to gamble on their “lucky days”. In addition, petitioners would watch other slot machine players; and if they had excessive losses, petitioners believed that taking over machines of losing players provided more opportunity. That was their plan for making a profit. ...
During 2006 petitioners traveled 130 miles each way to Nevada casinos on Friday afternoons and gambled for long hours, sleeping only a few hours per night. They did this every weekend and on legal holidays when they were off work. Petitioners, because of their “lucky day” beliefs, generally limited their slot machine playing to one of the two individuals--the one with the more favorable “lucky day” indicators.
During 2006 petitioners reported combined winnings of $852,230. ... For 2006 petitioners’ losses exceeded their gains by approximately $200,000. On the 2006 return petitioner claimed that he was a professional gambler. ...
In 1975, 57% of all college professors had tenure or were on a tenure track. In 2007, that number had fallen to 31%, and a new federal report, to be released in the fall, is expected to show another decline for 2009, The Chronicle of Higher Education reported this month.
What are the implications of the decline of tenure? Does tenure promote students' learning or raise the level of academic scholarship?
Critics of the system, which provides job security, say that it promotes mediocrity and sloth among an aging academy, blocking opportunities for young scholars, and encourages useless research as tenure candidates vie to be published in jargon-filled journals that no one reads. Tenure's defenders say that professors who have it are better able to challenge students by risking unpopularity, and to express opinions without fear of retribution. What will happen to American higher education if tenure disappears?
- Cathy A. Trower (Harvard), How to Start Over
- Cary Nelson (Illinois), At Stake: Freedom and Learning
- Mark C. Taylor (Columbia), Unsustainable and Indefensible
- Adrianna Kezar (USC), No Tenure, No Nothing
- Richard Vedder (Ohio University), Reducing Intellectual Diversity
In an income tax system that comported with the economic, or Haig-Simons, definition of income, deductible expenses would not face source-based limitations. A true Haig-Simons income tax system therefore would not take the schedular approach of sorting different types of expenses and losses into distinct conceptual “baskets” containing corresponding types of income. Practical realities often require departing from the Haig-Simons norm, however. The U.S. federal income tax system does require individuals to basket a number of types of expenses and losses. For example, individuals’ passive activity losses can only be deducted from passive income gains. By contrast, most corporations taxed under Subchapter C of the Internal Revenue Code are not subject to many of these restrictions. Thus, corporations generally can deduct their passive/investment expenses and losses from their active business income. That ability allowed the creation of infamous tax strategies such as Son-of-BOSS and the CINS contingent installment sale shelter.
As a device to prevent the resurgence of abusive tax shelters, the article proposes to extend to the domestic corporate context the passive/active distinction that already exists for individuals. If corporations’ passive-source expenses and losses were required to be basketed with their passive income (such as income from interest; dividends; and rents and royalties, other than those produced by an active business), many abusive tax shelters involving financial products would not work. The article also considers the three principal objections to the proposal - that it is overbroad, underinclusive, and too complex - arguing that the proposal is tailored so as to minimize these costs.
In the opening paragraph of his dissent in Christian Legal Society v. Martinez, No. 08-1371 (June 28, 2010), Justice Samuel Alito names the principle he finds animating the majority opinion: “no freedom for expression that offends prevailing standards of political correctness in our country’s institutions of higher learning.” I have come to think he is right. ...
C.L.S. membership policy and the beliefs it declares [is] inextricable; you can’t have one without the other. And this would mean, as I have already more than suggested, that the so called viewpoint-neutral all-comers policy is not neutral at all, any more than a law that no one can sleep under bridges (a classic example) would be neutral. Only the poor and homeless would want to sleep under bridges; the “neutral” law forbidding it would obviously be directed at them. Only religions that recognize no distinction between belief and conduct would want to restrict membership to persons pledged to the performance of specific behaviors; the “neutral” all-comers requirement is obviously directed at them. The distinction on which Ginsburg relies between disapproving C.L.S.’s beliefs and disapproving its “act” won’t work. If you penalize the group for its membership policies, you are penalizing it for its beliefs.
This is Alito’s point in his dissent: “As written and enforced, the Policy targets solely those group whose beliefs are based on ‘religion’ or that disapprove of a particular kind of sexual behavior.” I would emend slightly: the policy is targeted at those religions that would be in violation of their own beliefs were they to countenance, by membership policy or any other action, particular kinds of sexual behavior. The legal doctrine to be invoked here (and Alito invokes it) is “expressive association,” the idea that certain actions a group might take are so expressive of their reasons for being that those actions are inseparable from those reasons. ...
Under cover of “neutrality,” Hastings, with the majority’s approval, is imposing the goals and ideology of liberal multiculturalism on the very diverse members of the law school’s community. Justice John Paul Stevens may be right on the law when he observes in a concurring opinion that “the university need not remain neutral . . . in determining which goals the [R.S.O.] program will serve and which rules are best suited to facilitate those goals,” but he and his colleagues in the majority cannot at the same time make statements like that one and claim to be speaking in the name of neutrality.
The credits and subsidies that make the tax code so complicated cost big bucks. Reduce them by third and the debt will be 72% of GDP in 2020 instead of 90%.
When it comes to spending cuts, Congress is looking in the wrong place. Most federal nondefense spending, other than Social Security and Medicare, is now done through special tax rules rather than by direct cash outlays. The rules are used to subsidize a wide range of spending including education, child care, health insurance, and a myriad of other congressional favorites.
These tax rules—because they result in the loss of revenue that would otherwise be collected by the government—are equivalent to direct government expenditures. That's why tax and budget experts refer to them as "tax expenditures." This year tax expenditures will raise the federal deficit by about $1 trillion, according to estimates by the congressional Joint Committee on Taxation. If Congress is serious about cutting government spending, it has to go after many of them. ...
One simple approach would be to reduce such tax deductions by 10% in the first year, 20% in the second, and so on until the deduction is cut to 50% of its current size. That same kind of gradual and partial phase-down could also be applied to some of the employer-provided benefits such as life insurance premiums and travel costs that are now excluded from taxable income.
The enormous projected fiscal deficits are a threat to our economic future and our national security. The American public wants to reduce those deficits by cutting government spending. A major reduction of the spending that is built into our tax code is the best way to achieve that.
The United States is one of the last countries to tax married couples jointly; most other countries have adopted individual taxation. In 1990, the United Kingdom completed transitioning its tax system from one that treated husbands and wives as a marital unit to one that mandates an individual-based system, and so it has two decades of experience with the new regime. This article provides American policymakers valuable information regarding the consequences of adopting individual taxation by examining the U.K.’s experience. First, it establishes a matrix of factors that identifies and assesses differences between the two nations that affect the predictive value of the U.K.’s experience for the U.S. The article then reviews the origins and development of the U.K.’s original mandatory joint return and the forces that drove the change to individual taxation. Finally, it appraises the consequences of this revision of British law, including the improved economic position of many wives and the increased incidence of tax avoidance. Comparing the change in the U.K. with what would likely occur in the U.S., this article uses comparative taxation to provide a guide for the U.S., urging consideration of the costs as well as the benefits of changing tax units.
In this article, Johnston examines new data showing that taxes are the biggest bargain in America, something no one would know from the tenor of the debate in Washington and on talk shows.
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Update: Tax Lawyer's Blog, A Response to David Cay Johnston.