Paul L. Caron

Wednesday, July 25, 2012

Senate Holds Hearing Today on Education Tax Incentives and Tax Reform

Senate LogoThe Senate Finance Committee holds a hearing today on Education Tax Incentives and Tax Reform:

  • Waded Cruzado (President, Montana State University)
  • Susan Dynarski (Associate Professor, University of Michigan)
  • Scott Hodge (President, Tax Foundation)
  • Lynne Munson (President, Common Core)
  • James White (Director, Tax Issues, U.S. Government Accountability Office)

In connection with the hearing, the Joint Committee on Taxation has released Background and Present Law Relating to Tax Benefits for Education (JCX-62-12).

July 25, 2012 in Congressional News, Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 24, 2012

Golden Gate Dedicates Bruce F. Braden School of Taxation

GGUGolden Gate University has renamed its School of Taxation the Bruce F. Braden School of Taxation:

The school, which has been recognized as the oldest and largest tax program in the nation, dedicated its name after Bruce Braden, a successful business owner/operator in the oil and gas industry, who is an alumnus, former instructor, and serves on the board of trustees at GGU. ... “Golden Gate University’s newly named Bruce F. Braden School of Taxation has enrolled more students during the last 45 years than any other tax program in the nation,” said Mary Canning, Dean of the school. ... As the nation's leading tax school, GGU offers more tax classes at more times than any other university. We have an incredibly talented, widely skilled adjunct faculty base that gives our student body access to a greater variety of relevant classes within multiple areas of specialization,” continued Canning.

July 24, 2012 in Legal Education, Tax | Permalink | Comments (0) | TrackBack (0)

House Holds Hearing Today on Public Charity Tax Issues

House LogoThe Subcommittee on Oversight of the House Ways & Means Committee holds a hearing today on Public Charity Organizational Issues, Unrelated Business Income Tax, and the Revised Form 990:

The hearing will focus on organizational and compliance issues related to public charities, including the increased complexity of public charity organizational structures, the rules governing profit-generating activities giving rise to unrelated business income tax, and whether the newly redesigned Form 990 is promoting increased compliance and transparency.

  • Eve Borenstein (Borenstein and McVeigh Law Office)
  • John Colombo (University of Illinois College of Law)
  • Thomas K. Hyatt (SNR Denton)
  • Steven T. Miller (Deputy Commissioner for Services and Enforcement, IRS)
  • Donald Tobin (Ohio State University College of Law)

July 24, 2012 in Congressional News, Tax | Permalink | Comments (0) | TrackBack (0)

ABA Publicly Censures, Fines Illinois $250k for Intentionally Inflating LSAT, GPA Medians to Goose U.S. News Ranking

Illinois LogoABA Legal Education Section Announces Sanctions Against University of Illinois College of Law:

The Council of the ABA Section of Legal Education and Admissions to the Bar today issued a public censure of the University of Illinois College of Law announcing sanctions against the law school for intentionally reporting and publishing false admissions data.

The council determined that the law school had violated the section’s Standards for Approval of Law Schools requiring law schools to maintain sound admissions policies and practices and to publish basic, accurate consumer information. The censure refers to intentionally false LSAT scores and incoming student grade-point-average data the school provided for the entering class of 2005 and the entering classes of 2007 through 2011.

The sanctions imposed include (1) a public censure; (2) a requirement that the law school issue a public corrective statement; (3) a requirement that the law school hire a compliance monitor to report to the section’s accreditation committee on its admissions process and data for the 2012-13 and 2013-14 academic years; (4) a monetary penalty; and (5) termination of a section agreement that allowed the law school to conduct an early-admissions program.

The censure explains that the monetary penalty addresses the harm to the reputation and standing of legal education and the profession resulting from the law school’s violation of the standards. The proceeds are to be placed in a separate, designated fund to be used by the section to monitor and enhance compliance with the data reporting and publication requirements of all ABA-approved law schools.

Prior TaxProf Blog coverage:

July 24, 2012 in Legal Education | Permalink | Comments (5) | TrackBack (0)

Morse: Corporate Tax Reform in Theory and in Politics

CTRSusan Morse (UC-Hastings), Corporate Tax Reform in Theory and in Politics (reviewing Martin A. Sullivan (Tax Analysts), Corporate Tax Reform: Taxing Profits in the 21st Century (Apress, 2011)):

To find out what is going on with corporate tax reform, read Martin Sullivan. Read his columns, and read his book, Corporate Tax Reform: Taxing Profits in the 21st Century. Read him because he squarely tackles the interaction of theory and politics in the area of tax policy.

Academic theories of legislative process make more sense in context. Daniel Shaviro’s analysis of the 1980’s individual base-broadening, rate-lowering reform package is a case in point.  In the area of corporate tax reform, scholars have worked with the understanding, developed for example by William Eskridge, Philip Frickey and Elizabeth Garrett, that the U.S. legislative process favors the status quo.  Against this backdrop, Jennifer Arlen and Deborah Weiss argue that agency costs further hamper reform because managers favor policies like accelerated depreciation that provide targeted incentives for new corporate investment, even though shareholders prefer policies that also enrich existing investment.  Michael Doran builds on the Arlen and Weiss analysis with a public choice account of heterogeneity of interests among different corporations.  The result, he argues, is an incentive for corporations that disproportionately benefit from a certain tax break, for example the research and development credit, to lobby energetically to keep that tax break rather than supporting more general reform proposals like base-broadening and rate-lowering.

Corporate Tax Reform and Sullivan’s related columns connect academic theories about corporate income tax reform to the political morass facing current corporate income tax reform proposals.  Like Doran, Sullivan emphasizes heterogeneity of interests.  It is possible to identify three broad factions in corporate tax reform:  global U.S.-parented multinational corporations, domestic incorporated businesses, and domestic unincorporated businesses.  And within each faction, there are significant differences in specific interests.  In his book, Sullivan devotes two chapters and an appendix to corporate tax expenditures, which are one main source of the differences between and within factions.

July 24, 2012 in Book Club, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

More on Mitt Romney's Tax Returns

WSJ: Firms Pass Up Tax Breaks, Citing Hassles, Complexity

WSJ ChartWall Street Journal:  Firms Pass Up Tax Breaks, Citing Hassles, Complexity, by John D. McKinnon:

For years, politicians have used targeted tax breaks to try to influence corporate behavior, offering lower tax bills as an incentive to hire more workers, boost energy efficiency and buy more equipment, among other things.

But executives, particularly at small and medium-size companies, complain that many of the tax deductions are either too cumbersome or too confusing. In some cases, the cost of obtaining the tax benefit is greater than the benefit itself—a wrinkle that has helped spawn a cottage industry of tax-credit consultants. Also problematic is the threat of pushback from the Internal Revenue Service.

The result: many companies are saying "no, thanks" and are likely paying more taxes than legally required. And corporate breaks that Washington hopes will boost the economy often prove ineffective. ...

As Republicans and Democrats are gearing up to overhaul the corporate tax code next year, simplification has become a bipartisan rallying cry for several reasons. ...

Complexity is costly. Compliance costs for U.S. businesses and individuals have been rising, and now reach at least 1% of GDP, or about $150 billion last year, and possibly much more, according to congressional researchers.

The Byzantine nature of the tax code also adds to concerns about U.S. competitiveness in a global economy in which many other countries have eased tax rates and rules in recent years.

So if everybody agrees complexity is a pain, why does it persist? In part, both the White House and Congress can't seem to resist fine-tuning the tax code to satisfy their diverse goals. And once a break is created, the IRS must issue rules to prevent people from taking inappropriate advantage.

Tax consultants estimate that eligible businesses obtain as little as 5% of the main domestic tax breaks that they are entitled to claim. That means firms are leaving tens of billions of dollars on the table every year. Out of 1.78 million corporate tax returns in the U.S., only about 20,000 claimed any of the three dozen main business tax credits in the code, according to IRS estimates.

WSJ Chart 2

July 24, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

Chemerinsky: You Get What You Pay for in Legal Education

UC-Irvine LogoNational Law Journal op-ed:  You Get What You Pay for in Legal Education, by Erwin Chemerinsky (Dean, UC-Irvine):

Professor Brian Tamanaha, in his provocative new book, Failing Law Schools, argues for a new approach to legal education that involves law schools that are dramatically less expensive. In fact, he singles out for criticism me and the University of California, Irvine School of Law (UCI) for creating an "elite" law school rather than one charging students less than $20,000 a year. Although everyone wants legal education to be less expensive, he proposes a model that is economically impossible without dramatically decreasing the quality of legal education.

Tamanaha makes many important points. He is right that the cost of legal education has gone up tremendously and requires most students to go substantially in debt to pay for it. ... His solution is to advocate much lower-cost law schools. But is it possible? Tuition at the University of California law schools is approximately $45,000 for in-state students and $55,000 for out-of-state students. This is comparable to the tuition at other elite public and private law schools. For public law schools, it reflects the dramatic decrease in state subsidies over recent years.

Tamanaha says that to create low-cost law schools there should be a very substantial decrease in faculty salaries and an increase in faculty teaching loads. But would this work, and what would it mean for legal education?

Tamanaha is correct that law professors are paid significantly more than university faculty in disciplines like English, philosophy and history. Imagine that a law school tried to pay at that level, say roughly half of current faculty salaries at top law schools. Who would come and teach at a school where they got paid half what other law schools would pay them, and who would stay there when other opportunities arose?

But even doing so wouldn't allow for the decrease in tuition that Tamanaha wants. At my law school, about 70% of the budget is faculty and staff salaries and benefits. Realistically, little could be gained by cutting staff salaries [but see UC-Hastings]. ...

About half of our budget is faculty salaries and benefits, but even slicing these in half wouldn't save nearly enough for a tuition decrease like the one Tamanaha argues for. ... Cutting a law faculty in half would require relying far more on relatively low-cost adjunct faculty. Tamanaha's assumption is that relying on practitioners rather than professors to teach more classes won't compromise the quality of the education students receive. Here I think he is just wrong. There are certainly some spectacular adjunct professors at every law school, and they play a vital role. But as I see each year when I read the student evaluations at my school, overall the evaluations for the full-time faculty are substantially better than they are for the adjuncts. It is easy to understand why. Teaching is a skill, and most people get better the more they do it. Moreover, full-time faculty generally have more time to prepare than adjunct professors who usually have busy practices. ...

Tamanaha says that UCI Law School "squandered" its opportunity, and that where we "went wrong was in setting out to create an elite law school." My goal, and that of my university, has been to create a top 20 law school from the outset. Recently, a study of faculty scholarly impact ranked UCI Law's faculty seventh in the country (behind Yale, Harvard, Chicago, Stanford, New York University and Columbia). Our students are of the caliber of top 20 law schools by traditional measures of LSAT and grade-point averages. Our applications were up 105% this year. ...

If we had followed Tamanaha's advice, we would not have faculty remotely of this quality and then never could have attracted students of this caliber. We surely would have been a fourth-tier law school. It is ironic that he would be advocating that because so much of his book is about demonstrating the serious problems such schools face.

I do not deny that legal education faces difficult challenges and Tamanaha identifies many. But nor do I believe the picture is nearly as bleak as he believes it is, and I am convinced that his solution is neither possible nor desirable.


July 24, 2012 in Legal Education | Permalink | Comments (18) | TrackBack (0)

House Holds Hearing Today on Internet Sales Tax Collection Legislation

House LogoThe House Judiciary Committee holds a hearing today on H.R. 3179, the Marketplace Equity Act of 2011:

The bill would authorize states to "require all sellers making remote sales to collect and remit sales and use taxes with respect to such sales into the state, without regard to the location of the seller, if such states implement a simplified system for administration of sales and use tax collection for remote sellers," according a to a summary by the Library of Congress.  The collection system would be required to include: "(1) an exception for remote sellers with gross annual receipts in the preceding calendar year from remote sales not exceeding $1 million in the United States or not exceeding $100,000 in the state, (2) a single sales and use tax return for use by remote sellers and a single revenue authority within the state with which remote sellers are required to file a tax return, and (3) a uniform tax base throughout the state."

The bill would define "remote sale" as a sale of goods or services attributed to a state with respect to which a seller does not have adequate physical presence to establish a nexus so as to allow such state to require such seller to collect and remit taxes.

  • Steve DelBianco (NetChoice)
  • Wayne Harper (Utah House Member, on behalf of Streamlined Sales Tax Governing Board)
  • Bill Haslam (Tennessee Governor, on behalf of National Governors Association)
  • Joseph Henchman (Tax Foundation)
  • Hanns Kuttner (Hudson Institute)

Press and blogosphere coverage:

July 24, 2012 in Congressional News, Tax | Permalink | Comments (0) | TrackBack (0)

33% of Colleges Are on 'Unsustainable Financial Path'

Bain CoverBain & Company and Sterling Partners have released a study (The Financially Sustainable University) and accompanying website (Financial Fade) reporting that over 33% of 1,700 public and private nonprofit colleges are on an "unsustainable financial path," with 28% "at risk of slipping into an unsustainable condition."

July 24, 2012 in Legal Education | Permalink | Comments (3) | TrackBack (0)

Monday, July 23, 2012

Apple's Phantom Taxes Hide Billions in Profit

Apple LogoMSNBC:  How Apple's Phantom Taxes Hide Billions in Profit:

Apple does the 'Double Irish with a Dutch Sandwich' but with a twist.

On Tuesday, Apple is set to report financial results for the second quarter. Analysts are expecting net income of $9.8 billion. But whatever figure Apple reports won't reflect its true profit, because the company hides some of it with an unusual tax maneuver.

Apple Inc., already the world's most valuable company, understates its profits compared with other multinationals. It's building up an overlooked asset in the form of billions of dollars, tucked away for tax bills it may never pay.

Tax experts say the company could easily eliminate these phantom tax obligations. That would boost Apple's profits for the past three years by as much $10.5 billion, according to calculations by The Associated Press.

While investors might rejoice if Apple suddenly added $10.5 billion to its profits, unilaterally erasing a massive U.S. tax obligation could tarnish its reputation as a relatively responsible payer of U.S. taxes. Instead, the company is lobbying to change U.S. law so that it can erase its liabilities in a less conspicuous fashion. The issue has become part of the presidential campaign.

Like other companies, Apple typically keeps profits on overseas sales in overseas accounts. When someone buys an iPad in Paris or Sydney, for instance, the profit stays outside the United States.

Apple may pay some corporate income taxes on that profit to the country where it sells the iPad, but it minimizes these by using various accounting moves to shift profits to countries with low tax rates. For example the strategy known as "Double Irish With a Dutch Sandwich," routes profits through Irish and Dutch subsidiaries and then to the Caribbean.

When it comes to using creative tax techniques, Apple is no different from other multinational corporations, says Robert Willens, an independent accounting expert.

(Hat Tip: Ann Murphy.)

Update: Dan Shaviro (NYU), Is Apple Deliberately Understating its Earnings?


July 23, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

Take This (Legal) Job and Count It

Kyle P. McEntee & Derek Michael Tokaz (both of Law School Transparency), Take This Job and Count It, 2 J. Law (1 J. Legal Metrics) 309 (2012):

The U.S. News “Best Law Schools” rankings are the most prolific tool for making application and enrollment decisions. Such decisions are often made under the belief that the U.S. News rankings serve as a proxy for employment opportunities. Such beliefs are mistaken. U.S. News rankings bear almost no relationship to placement in the legal profession, and compare schools on a national scale that does not reflect the significantly more important regional hierarchies. A prospective student primarily concerned with entering the legal practice after graduation is worse off for having been exposed to the U.S. News rankings.

In this article, we explain the methodology and form of Law School Transparency's Law School Score Reports -- a tool designed to improve prospective student decision making. Employment outcomes are (and should be) one of the most important considerations for a prospective student. Because students typically have a narrow range of locations they’d like to practice in, and schools are generally limited to regional placement, we dispense with the irrelevant national ranking in favor of regional sorting based on geographic placement.

A state or regional report can be used to compare schools based on our three scores, a legal employment metric, an underemployment metric, and a reliability indicator. These broad displays of employment outcomes are then supplemented with more detailed information about each individual school. The data is both thorough yet presented in an intuitive manner, allowing prospective students to easily make more informed decisions about which schools, if any, match their career objectives.

July 23, 2012 in Legal Education | Permalink | Comments (0) | TrackBack (0)

President Obama and Tax Fairness

Wall Street Journal op-ed:  The Latest News on Tax Fairness, by Ari Fleischer:

A new CBO report shows the share of taxes paid by the top 20% has gone up over the last 30 years, while the share of taxes paid by everyone else has gone down.

If fairness in paying taxes means the amount you pay is based on the amount you make, then the only group in America paying at least a "fair share" is the top 20% -- people who make more than $74,000. For everyone else, the tax code is a bargain.

You wouldn't know this from President Obama's rhetoric, but our tax system, according to a recent report by the CBO, is incredibly progressive. Consider: The top 1% of income earners pay an average federal tax rate of 28.9%. (See the nearby table.) The average federal tax rate on the top 20% is 23.2%. The 20% of taxpayers earning between $50,100 and $73,999 pay an average 15.1%, and so on down the line. The CBO report includes payroll as well as income taxes paid.

There's also another way of looking at fairness, and that's the tax burden. Here, consider the top 20% of income earners (over $74,000). They make 50% of the nation's income but pay nearly 70% of all federal taxes.

The remaining 30% of the tax burden is borne by 80% of the taxpayers, those who make less than $74,000. In short, this group's share of taxes paid, 30%, is lower than the share of income they earn, 50%.


One reason our country is so divided is because the president keeps dividing us. If taxes need to be raised to fight a war or fund a cause, the president should ask everyone to pitch in. If the need is national, the solution should be national—and that includes all of us.

But that's not how Mr. Obama governs. We learned during the 2008 campaign that he believes in spreading the wealth around. And recently we learned he doesn't believe that successful people made it on their own. Without the government, the president tells us, job creators and entrepreneurs would not be able to make it in America.

It's really the other way around. Without job creators and the successful, the government wouldn't have any money. So next time Mr. Obama meets someone in the top 1% or even the top 20%, instead of saying they're not paying their fair share, he should simply say thank you.

July 23, 2012 in Tax | Permalink | Comments (5) | TrackBack (0)

NPR: Job, Tuition Woes a Drain on Law Schools

NPR LogoNPR Morning Edition:  Job, Tuition Woes a Drain on Law Schools:

The American Bar Association has changed how law schools report their post-graduation employment stats. The bottom line: Job prospects are worse than previously thought for newly minted lawyers. But while the number of recent law school grads with jobs is falling, tuition is not.

July 23, 2012 in Legal Education | Permalink | Comments (0) | TrackBack (0)

Bartlett: Will Defense Cuts Kill the Anti-Tax Pledge?

The Fiscal Times:  Will Defense Cuts Kill the Anti-Tax Pledge?, by Bruce Bartlett:

Republicans are between the rock of defense cuts that they view as unpalatable and the tax pledge hard place. There is no doubt that Democrats would agree to a tax increase to offset the defense sequester, but would oppose any other alternative except, perhaps, putting off the entire sequester, including domestic spending cuts, for a year. It’s doubtful that the GOP’s Tea Party wing would support that.

Republicans are not yet ready to embrace a tax increase even to prevent defense cuts. But it is clear that they are ultimately going to have to choose one or the other.

July 23, 2012 in Tax, Think Tank Reports | Permalink | Comments (4) | TrackBack (0)

Ohio Law Schools Reduce Incoming 1L Class Size by 15% in Wake of 'Catastrophic' Legal Job Market

Cleveland Plain Dealer: Law Schools Reduce Classes as Applications Drop in Wake of Fewer Legal Jobs:

"What is going on in the market is absolutely catastrophic," said Craig Boise, dean of CSU's Cleveland-Marshall College of Law. "It is not short-term. It has been precipitated by what is going on in the economy, which is a long-term dislocation caused by the way legal services are being delivered. Technology and cheaper contract labor is eliminating a lot of law firm jobs." ...Law school applications were down 28% at CSU this year, he said, prompting officials to decrease class size to ensure quality students. ...

Boise said the CSU faculty approved a wide-ranging curriculum reform last year to focus on how to practice law instead of studying "high" legal theory. He said the current model of law schools is not sustainable. "This is not a passing storm," he said. "There is a wholesale transition in our industry. We have got to position ourselves."

He likes a well-known quote from hockey legend Wayne Gretzky: "A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be." Said Boise, "We are trying really hard to be where the puck is going to be."

The article reports these incoming 1L class size reductions at Ohio law schools:

  • Case Western: -14.1%  (165, down from 192 in 2011)
  • Cleveland State:  -16.2%  (140, down from 167 in 2011 (and 200 in 2010))
  • Ohio State:  -15%:  (180, down from 211 in 2011)

July 23, 2012 in Legal Education | Permalink | Comments (2) | TrackBack (0)

World's Elite Hide $21-32 Trillion From Tax Man in Offshore Accounts

Tax Justice NetworkTax Justice Network, The Price of Offshore Revisited:

At least $21 trillion of unreported private financial wealth was owned by wealthy individuals via tax havens at the end of 2010. This sum is equivalent to the size of the United States and Japanese economies combined.

There may be as much as $32 trillion of hidden financial assets held offshore by high net worth individuals, according to our report The Price of Offshore Revisited, which is thought to be the most detailed and rigorous study ever made of financial assets held in offshore financial centres and secrecy structures.

We consider these numbers to be conservative. This is only financial wealth and excludes a welter of real estate, yachts and other non--financial assets owned via offshore structures.

The research for the Tax Justice Network by former McKinsey & Co Chief Economist James Henry comes amid growing concerns about an enormous and growing gulf between rich and poor in countries around the globe. Accompanying this research is another study by TJN, entitled Inequality: You Don't Know the Half of It, which demonstrates that all studies of economic inequality to date have failed to account properly for this missing wealth. It concludes that inequality is far worse than we think.


(Hat Tip: Robert Knox.)

July 23, 2012 in Tax | Permalink | Comments (3) | TrackBack (0)

More on Estate Planning for Illegal Assets

Canyon 2Following up on my previous post, Estate Planning for Illegal Assets:

What is the fair market value of an object that cannot be sold?

The question may sound like a Zen koan, but it is one that lawyers for the heirs of the New York art dealer Ileana Sonnabend and the IRS are set to debate when they meet in Washington next month. The object under discussion is Canyon, a masterwork of 20th-century art created by Robert Rauschenberg that Mrs. Sonnabend’s children inherited when she died in 2007.

Because the work, a sculptural combine, includes a stuffed bald eagle, a bird under federal protection, the heirs would be committing a felony if they ever tried to sell it. So their appraisers have valued the work at zero.

But the IRS takes a different view. It has appraised “Canyon” at $65 million and is demanding that the owners pay $29.2 million in taxes.  

(Hat Tip: Mike Talbert.)

July 23, 2012 in Tax | Permalink | Comments (1) | TrackBack (0)

How Hedge, Private Equity, and Venture Capital Funds Escape IRS Scrutiny

Tax Analysts Amy S. Elliott (Tax Analysts), Audit Proof? How Hedge Funds, PE Funds, and PTPs Escape the IRS, 136 Tax Notes 351 (July 23, 2012):

True or false: The largest U.S. businesses are under continuous audit by the IRS.

False. Some are effectively immune from audit. Whether a business is audited every year depends in part on its form of organization.

While the tax planning strategies and low effective rates of household-name, publicly traded corporations have made newspaper headlines, those companies are regularly and thoroughly examined by the IRS.

But large, widely held partnerships, including publicly traded partnerships (PTPs) -- which generally have thousands of direct and indirect partners -- seem largely to escape the scrutiny that the Service gives to their C corporation counterparts.

PTPs (such as oil and gas and real estate funds and investment funds like the Blackstone Group LP, the Carlyle Group LP, and KKR & Co. LP) aren't the only lucky ones. While private hedge, private equity, and venture capital funds might not be widely held in terms of the number of direct partners, if one of their investors is a fund of funds, the number of indirect partners balloons.

Through an investigation based on interviews with dozens of practitioners who have direct knowledge of the IRS's large partnership audit practices, including many with government experience, Tax Analysts has learned that this growing class of business entities poses serious problems for tax examiners.

All Tax Analysts content is available through the LexisNexis® services.

July 23, 2012 in Tax, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

NY Times: Tax Loopholes Block Efforts to Close Gaping U.S. Deficit

New York Times:  Tax Loopholes Block Efforts to Close Gaping U.S. Deficit, by Jonathan Weisman:

As a member of the “Gang of Six,” Senator Mike Crapo of Idaho has emerged as something of a hero among advocates of bipartisanship, one of three conservative Republicans working with three Democrats to cut the deficit by closing loopholes that allow businesses and households to avoid paying taxes.

Yet earlier this year, the senator made sure that a $3 billion loophole — protecting “black liquor,” an alcoholic sludge used as fuel in timber mills and factories — remained open in the negotiations over the highway bill that President Obama signed this month. Many budget experts criticize the loophole as a tax dodge because it allows the sludge to qualify for an energy subsidy created to wean the country off imported oil for vehicles, which black liquor does not do.

On Capitol Hill, lawmakers casually point to closing loopholes as the answer to much that ails the country. Negotiations to avoid automatic military spending cuts in January, to enact sweeping deficit reduction and to lower corporate and personal income tax rates all hinge on closing unidentified loopholes.

But the back-room actions on black liquor point to just how difficult it will be to lower the budget deficit through painless changes in the tax code. Even for a self-proclaimed deficit hawk like Mr. Crapo, one man’s loophole can be another’s vital constituent interest. ...

Federal tax receipts are reduced by more than $1 trillion a year by various tax deductions and credits, known as tax expenditures, often tied to a policy aim. Ending them would nearly eliminate the federal deficit, which is projected to be $1.2 trillion in the current fiscal year.

But the three largest are as popular as they are expensive: the mortgage interest deduction has cost about $75 billion a year recently, the employer deduction for health care has cost $120 billion a year, and the charitable-giving deduction has cost $38 billion a year, according to the bipartisan Joint Committee on Taxation.

(Hat Tip: Mike Talbert.)

July 23, 2012 in Tax | Permalink | Comments (2) | TrackBack (0)

Sunday, July 22, 2012

TaxProf Blog Weekend Roundup

A Taxing British Open

The OpenTaxTV:  The Open Championship, A Taxing Golf Tournament:

[N]ow is a good time to review the UK’s taxation rules on non-resident athletes. Not only will the golfers in this week’s tournament be liable for taxes on their winnings, but they will also owe Her Majesty’s Revenue and Customs (HMRC—UK’s tax collector) for taxes on endorsement income. In fact, even those who do not make the cut -- and will therefore not earn money from the tournament -- must pay taxes on endorsements. HMRC has a “Foreign Entertainers Unit (FEU)” whose job is to track the movement of athletes and entertainers who play or perform in the UK throughout the year. Tournaments withhold taxes from athlete earnings, so tracing income and withholding is relatively easy. ...

[G]olfers playing in The Open Championship will pay taxes on the following income from this week’s work:

  • Tournament Winnings -- for those who make the cut
  • Endorsement Retainers -- taxed based on days playing/practicing in the UK v. days playing/practicing elsewhere
  • Winning/Placing Bonuses -- fully taxed by the UK
  • Ranking Bonuses -- taxed based on ranking points earned in the UK v. points earned elsewhere
  • Paid appearances before, during & after The Open

(Hat Tip: Cory Birkhauser.)

July 22, 2012 in Celebrity Tax Lore, Tax | Permalink | Comments (2) | TrackBack (0)

NALP: New Lawyer Salaries, 1991-2011

NALP logoNALP Research: Salaries for New Lawyers: An Update on Where We Are and How We Got Here:

Back in 1991, salaries ranged from about $10,000 to about $200,000. Though hardly a normal “bell-shaped” curve, the 1991 curve shows some resemblance to one, with a big clustering of salaries (about 40% of salaries reported) in the $30,000 to $40,000 range and just 6% of salaries at $70,000, the median in big law firms at the time. ...

As the 1990s progressed, the curve maintained its basic shape, though salary increases at large firms gradually moved more of the salaries to the right of the $70,000 mark. ... That shape changed dramatically in 2000 as large firms increased their starting salaries to $125,000. Beyond just the amount of the increase, of more consequence for the salary distribution was how widespread the increase was. Suddenly nearly 14% of salaries were reported at $125,000, a proportion that can only be partially explained by an increasing percentage of jobs taken in large firms. The result was, for the first time, two peaks, with the other encompassing the $30,000 to $50,000 range. Thus, even though the peak to the left was now fatter and accounted for more salaries — 48% versus the 14% at $125,000— never before had a single salary so dominated the landscape.

The $125,000 peak remained through 2005. By 2006, the $125,000 peak had disappeared, replaced by two smaller yet very distinct peaks at $135,000 and $145,000, which together accounted for 17% of salaries. At the same time, salaries in the left-hand peak, at that point between $40,000 and $65,000, were still more common (48%).

In the three years that followed — 2007, 2008, and 2009 — the right-hand peak shifted to $160,000, accounting for 16%, 23%, and 25%, respectively, of reported salaries. Meanwhile, the $40,000 – $65, 000 peak shrank, accounting for 44%, 42%, and 32%, respectively of reported salaries. The increase tracks the increasing share of jobs in the very largest firms (more than 500 lawyers) from 12.8% of jobs in 2007 to almost 14.3% of jobs in 2009. Again, however, the widespread adoption of a single salary contributed to and magnified the increase beyond what would have occurred based just on the share of jobs. ... Things began to change in 2010, when the recession more fully impacted law firms, affecting the Class of 2010 in many ways, including a marked shrinking of summer classes in 2009. This resulted in the right-hand peak eroding back to 18% of reported salaries, and the left-hand peak bulking up to almost half (48%) of reported salaries. The erosion continued in 2011, with $160,000 salaries accounting for 14% of reported salaries, and $40,000 – $65,000 salaries accounting for over half (52%) of reported salaries. Finally, with so many salaries returning to the left-hand peak, the median salary — $60,000 for the Class of 2011 — again reflects the salary, or close to the salary, actually obtained by many grads.

How the two peaks shift in the future remains to be seen. For example, will the right-hand peak revert to two peaks, one at $145,000 and one at $160,000? The return to a semblance of bell curve seems unlikely, however.

July 22, 2012 in Legal Education | Permalink | Comments (1) | TrackBack (0)

Tax Consequences of Chevrolet's 'Love It Or Return It' Promotion

Chevy-confidence_2Chevrolet is running a Chevy Confidence Love It or Return It sales promotion for purchases of any new 2012 or 2013 Chevrolet through September 4:  if you do not love the car, you can return it for a full refund (less sales tax) between 31 and 60 days after purchase (as long as the car has been driven less than 4,000 miles). Here is the tax fine print:

Tax Implications: You may be subject to federal, state, or local tax on any benefit paid. You should contact a tax advisor/consultant if You have any questions regarding the tax implications associated with this program.

For example, Edmunds says that a 2012 Chevy Impala LTZ sells new in San Diego for $27,235, and $21,313 used with 3999 miles. So would an Impala buyer have $6,000 income upon returning the car? Or would this be analogous to a purchase price adjustment under § 108(e)(5)?

Hat Tip: Scott Matthews.)

July 22, 2012 in Tax | Permalink | Comments (9) | TrackBack (0)

Saturday, July 21, 2012

Top 5 Tax Paper Downloads

SSRNThere is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #2. The #1 paper is #15 in all-time downloads  among 8,531 tax papers:

1.  [2257 Downloads]  Death and Taxes and Zombies, by Adam Chodorow (Arizona State)

2.  [937 Downloads]  Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA, by Jonathan H. Adler (Case Western) & Michael F. Cannon (Cato Institute)

3.  [306 Downloads]  Making Voluntary Disclosures to the IRS, by John A. Townsend (Houston)

4.  [289 Downloads]  How the Affordable Care Act Will Create Perverse Incentives Harming Low and Moderate Income Workers, by David Gamage (UC-Berkeley)

5.  [275 Downloads]  Does the Taxing Clause Give Congress Unlimited Power?, by Erik M. Jensen (Case Western)

July 21, 2012 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0) | TrackBack (0)

Court Dismisses Fraud Lawsuit Against Second Law School: ABA Placement Data Are 'So Vague and Incomplete as to be Meaningless and Could Not Reasonably be Relied Upon'

Thomas Cooley LogoThe U.S. District Court for the Western District of Michigan yesterday dismissed a a class action lawsuit brought by former students of Thomas M. Cooley Law School alleging misrepresenting of placement data. MacDonald v. Thomas M. Cooley law School, No. 1:11-CV-831 (W.D. Mich. July 20, 2012) (citations omitted):

Plaintiffs are 12 graduates of Defendant, Thomas M. Cooley Law School. They allege that Cooley deceived, defrauded, and misled them regarding Cooley graduates’ employment prospects, which caused Plaintiffs to pay more to attend law school than they would have paid if Plaintiffs had known the true prospects of their employment. The three-count amended complaint charges Cooley with violating Michigan’s Consumer Protection Act (Count I); fraud (Count II); and negligent misrepresentation (Count III). Plaintiffs seek, among other things, $300,000,000 in damages. ...

Cooley, a for-profit law school, enrolls more law students than any other law school in the country -- approximately 4,000. It is ranked in the bottom tier by every major law school ranking. Cooley has the lowest admission standards of any accredited or provisionally-accredited law school in the country. In 2010, the incoming students’ mean LSAT score was 146,3 and the mean Undergraduate Grade Point Average was 2.99. Cooley enrolls roughly 1,500 new students each year. Approximately one-third of those students fail to graduate. Don LeDuc, the Dean of Cooley, was paid more than $500,000 in 2008 and 2009.

Cooley publishes its own law-school rankings, which have been met with “great skepticism, if not outright ridicule, and no reputable academic or legal commentator takes it serious.” Dean LeDuc and former Dean Brennan publish these rankings. “Incredulous[ly],” these rankings place Cooley as the second best law school in the country. Apparently, Dean LeDuc and former Dean Brennan think that the overall size of the student body, library total square footage, and library seating capacity are some of the factors that make a law school better than others. Cooley still publishes these rankings, which are still available on Cooley’s website...

The crux of Plaintiffs’ complaint . . . comes from an “Employment Report and Salary Survey” (“Employment Report”) that Cooley provides to prospective and current students. Plaintiffs allege that Cooley “blatantly misrepresent[s] and manipulat[es] its employment statistics” in these Employment Reports. . . .

Without question, the Employment Reports are inconsistent, confusing, and inherently untrustworthy. For example, whether Plaintiffs are referring to the median or mean average, there is an ambiguity in the descriptor of salary because the average salary stated in Cooley’s dissemination assumes the existence of a salary in the first place. In other words, a question arises, as it arose in oral argument, does the statistic consider the “salaries” of those Cooley graduates who were not employed or who were sole practitioners who listed a salary of zero? Plaintiffs argued, as stated above, that to have failed to consider a “zero” salary would be misleading. But maybe not. This is the kind of question that a person serious about considering this statistic would ask. Plaintiffs and prospective students should have approached their decision to enter into law school with extreme caution given the size of the investment. Thus, even though Plaintiffs did not know the truth of how many graduates were used to calculate the average salary, at the very least, it is clear that the Employment Report has competing representations of truth. With red flags waiving and cautionary bells ringing, an ordinary prudent person would not have relied on the statistics to decide to spend $100,000 or more. . . .

This Court does not necessarily agree that college graduates are particularly sophisticated in making career or business decisions. Sometimes hope and dreams triumph over experience and common sense. Nevertheless, it would be unreasonable for Plaintiffs to rely on two bare-bones statistics in deciding to attend a bottom-tier law school with the lowest admission standards in the country. ...

The bottom line is that the statistics provided by Cooley and other law schools in a format required by the ABA were so vague and incomplete as to be meaningless and could not reasonably be relied upon. But, as put in the phrase we lawyers learn early in law school -- caveat emptor.

Thomas Cooley issued this press release in response to the district court's decision:

"We’re obviously pleased with this decision," said Don LeDuc, Cooley’s president and dean. "We are committed to graduating law students who are ready to practice law, and their success in a tough job market is our success too. We have always been in compliance with ABA and NALP employment reporting standards."

Four months ago, a state court dismissed a similar lawsuit filed by graduates of New York Law School. Gomez-Jimenez v. New York Law School, No. 65226/11 (NY Sup. Ct. Mar. 21, 2012):

The court does not view these post-graduate employment statistics to be misleading in a material way for a reasonable consumer acting reasonably. By anyone’s definition, reasonable consumers — college graduates — seriously considering law schools are a sophisticated subset of education consumers, capable of sifting through data and weighing alternatives before making a decision regarding their post-college options, such as applying for professional school. ...

It is also difficult for the court to conceive that somehow lost on these plaintiffs is the fact that a goodly number of law school graduates toil…in drudgery or have less than hugely successful careers. NYLS applicants, as reasonable consumers of a legal education, would have to be wearing blinders not to be aware of these well-established facts of life in the world of legal employment.

July 21, 2012 in Legal Education | Permalink | Comments (5) | TrackBack (0)

Smith: The APA's Arbitrary and Capricious Standard and IRS Regulations

Tax Analysts Patrick J. Smith (Ivins, Phillips & Barker, Washington, D.C.), The APA's Arbitrary and Capricious Standard and IRS Regulations, 136 Tax Notes 271 (July 16, 2012):

The Supreme Court’s Mayo decision and the D.C. Circuit’s Cohen decision have made clear that principles of administrative law generally, and the Administrative Procedure Act (APA) in particular, apply to tax law and the IRS just as they do to all other federal agencies. The APA’s arbitrary and capricious standard provides a powerful but seldom-used tool for taxpayers in challenging IRS regulations, because the IRS seems unaware of the requirements imposed by the standard and even instructs its personnel to draft preambles to regulations in a way that is inconsistent with what thestandard requires.

All Tax Analysts content is available through the LexisNexis® services.

July 21, 2012 in Scholarship, Tax | Permalink | Comments (3) | TrackBack (0)

O’Donnabhain and the Tax Treatment of Gender Reassignment Surgery

Nicole M. True (J.D. 2012, Iowa), Removing the Constraints to Coverage of Gender-Confirming Healthcare by State Medicaid Programs, 97 Iowa L. Rev. 1329 (2012):

In April of 2010, the United States Tax Court in O’Donnabhain v. Commissioner held that sex reassignment surgery and hormone therapy are tax-deductible medical expenses under the Internal Revenue Code. In the course of reaching its decision, the court found that sex reassignment surgery is a medically necessary treatment for gender identity disorder and that the medical community generally agrees that sex reassignment is both an appropriate and effective treatment for gender identity disorder. While these findings were reached in a case interpreting the Internal Revenue Code, they still have the potential to influence whether these forms of treatment are covered under the Federal Medicaid Act. Currently, individuals diagnosed with gender identity disorder face a great deal of difficulty getting Medicaid or private insurance to cover most genderconfirming treatment, particularly sex reassignment surgery. This Note focuses on state Medicaid coverage of sex reassignment surgery and other gender-confirming healthcare and argues that courts reviewing denials of coverage for these treatments should adopt the findings in O’Donnabhain. Further, this Note argues that states with regulatory and statutory provisions explicitly excluding coverage of sex reassignment surgery and other gender-confirming healthcare should repeal them or, in the alternative, that the courts in these jurisdictions should judicially invalidate these provisions because they no longer comply with the requirements imposed by the Federal Medicaid Act.

July 21, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

State Approaches to Increasing Use-Tax Revenue

Joel Griffiths (J.D. 2012, Kansas), Comment. Use It or Lose It: State Approaches to Increasing Use-Tax Revenue, 60 U. Kan. L. Rev. 649 (2012):

In the absence of Congress’s adopting a nationwide standard, states have struggled to find a constitutionally acceptable approach to increasing use-tax compliance and revenue. Three distinct solutions have developed: affiliate taxes, increased notification standards, and the Streamlined Sales Tax Project. Each approach offers a unique attempt to increase use-tax revenue while remaining within the boundaries of the law.

This Comment will explain each approach, evaluate each approach’s constitutionality, and determine whether the approach will actually raise revenue. Part II of this Comment describes both the current status of use taxes and the states’ approaches to increasing revenue therefrom. Part III begins by analyzing the constitutionality of each approach and continues with an assessment of the feasibility of state implementation. Finally, Part III concludes with a discussion of whether the respective approaches will actually achieve their goals: raising use-tax compliance and revenue.

July 21, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Friday, July 20, 2012

WSJ: IRS Audit of Romney Donor Raises Questions About Presidential Enemies List

EnemiesWall Street Journal:  Obama's Enemies List—Part II, by Kimberley A. Strassel:

This column has already told the story of Frank VanderSloot, an Idaho businessman who last year contributed to a group supporting Mitt Romney. An Obama campaign website in April sent a message to those who'd donate to the president's opponent. It called out Mr. VanderSloot and seven other private donors by name and occupation and slurred them as having "less-than-reputable" records.

Mr. VanderSloot has since been learning what it means to be on a presidential enemies list. Just 12 days after the attack, the Idahoan found an investigator digging to unearth his divorce records. This bloodhound—a recent employee of Senate Democrats—worked for a for-hire opposition research firm.

Now Mr. VanderSloot has been targeted by the federal government. In a letter dated June 21, he was informed that his tax records had been "selected for examination" by the IRS. The audit also encompasses Mr. VanderSloot's wife, and not one, but two years of past filings (2008 and 2009).

Mr. VanderSloot, who is 63 and has been working since his teens, says neither he nor his accountants recall his being subject to a federal tax audit before. He was once required to send documents on a line item inquiry into his charitable donations, which resulted in no changes to his taxes. But nothing more—that is until now, shortly after he wrote a big check to a Romney-supporting Super PAC.

Two weeks after receiving the IRS letter, Mr. VanderSloot received another—this one from the Department of Labor. He was informed it would be doing an audit of workers he employs on his Idaho-based cattle ranch under the federal visa program for temporary agriculture workers. ...

Perhaps all this is coincidence. Perhaps something in Mr. VanderSloot's finances or on his ranch raised a flag. Americans want to believe the federal government performs its duties without fear or favor.

Only in this case, Americans can have no such confidence. Did Mr. Obama pick up the phone and order the screws put to Mr. VanderSloot? Or—more likely—did a pro-Obama appointee or political hire or career staffer see that the boss had an issue with this donor, and decide to do the president an unasked-for election favor? Or did he or she simply think this was a duty, given that the president had declared Mr. VanderSloot and fellow donors "less than reputable"?

Mr. VanderSloot says he "expected the public beatings" from the left after the naming, but he "also wondered whether government agencies, anxious to please their boss, would take notice of the target he had apparently placed on me. Now that I'm being singled out for audits, I can't help but wonder whether there is a connection." ... Every thinking American must henceforth wonder if Mr. VanderSloot has been targeted for inquiry because of his political leanings.

July 20, 2012 in IRS News, Tax | Permalink | Comments (17) | TrackBack (0)

Forbes: Both Left and Right Got the Taxes on the Romneys' Olympic Horse Wrong

DressageFollowing up on my previous post, Tobin: The Tax Treatment of Ann Romney's Dressage Horse Activity:  Forbes:  Both Left and Right Got the Taxes on the Romneys' Olympic Horse Wrong, by Janey Novack:

If Mitt Romney caves and releases more years of his tax returns, expect mass tax confusion. Oh sure, Americans will get (and Democrats will flog) the main point: thanks to the low 15% tax rate on long term capital gains and carried interest and to his expensive tax advisers, Romney pays a lower effective tax rate than many TurboTax users do. (During 2010, the one year he has released, his federal income tax tab came to just 13.7% of his adjusted gross income.)

So why confusion? Because the tax code is filled with arcane provisions and rich folks’ exploiting those breaks generally aim to tell the Internal Revenue Service the minimum required. Consider just one tiny onshore item on Williard M. & Ann D. Romney’s 203-page joint 1040 for 2010. That item is a $77,731 loss from Rob Rom Enterprises LLC, which owns Rafalca, the horse that equestrian Jan Ebeling will ride for the U.S. in the “dressage” competition in the London Olympics. Dressage, as The New York Times deliciously put it, is a sport in which “horses costing up to seven figures execute pirouettes and other dancelike moves for riders wearing tails and top hats.” Ann Romney took up dressage after being diagnosed with multiple sclerosis, has used Ebeling as her trainer for a decade and owns Rob Rom in partnership with Mr. Ebeling’s wife and another Romney family friend.

(Hat Tip: Greg McNeal.)

July 20, 2012 in Tax | Permalink | Comments (1) | TrackBack (0)

Avi-Yonah: Taxation as Regulation

Reuven S. Avi-Yonah (Michigan), Taxation as Regulation: Carbon Tax, Health Care Tax, Bank Tax and Other Regulatory Taxes:

The Supreme Court's decision to uphold the Affordable Care Act as an exercise of the taxing power has led to a reconsideration of the regulatory role of taxation. This paper re-evaluates that role in light of the decision and examines when taxation should be used for regulatory purposes.

July 20, 2012 in Scholarship, Tax | Permalink | Comments (1) | TrackBack (0)

CBPP: Allowing High-Income Bush Tax Cuts to Expire Would Affect Few Small Businesses

Center on Budget and Policy Priorities:  Allowing High-Income Bush Tax Cuts to Expire Would Affect Few Small Businesses:

Figure 1Allowing the top two marginal tax rates to return to pre-2001 levels as scheduled next year would affect very few small businesses, a recent Treasury Department study found. The study shows that only 2.5% of small business owners face the top two rates. ... [A]n extension of the high-income Bush tax cuts would, in essence, constitute a massive tax cut for very wealthy individuals who overwhelmingly aren’t small business operators. ...

The arguments against allowing the high-end tax cuts to expire on schedule echo those made against President Clinton’s proposed 1993 tax increases, which set marginal rates at the levels to which they are set to return when the Bush rate cuts expire.  Critics claimed at the time that those tax increases would seriously harm economic growth and even send the economy back into recession.  As it turned out, job creation and economic growth proved significantly stronger following the 1993 tax increases than following the 2001 Bush tax cuts.  Further, small businesses generated jobs at twice the rate during the Clinton years than they did under the Bush tax code (see Figure 1).

July 20, 2012 in Tax, Think Tank Reports | Permalink | Comments (1) | TrackBack (0)

Quill by Affiliation

Alexander Smith (LL.M. (Tax) 2011, Miami), Quill by Affiliation, 66 U. Miami L. Rev. 755 (2012):

Section II of this article discusses the Supreme Court's case law on personal jurisdiction due process and state tax dormant Commerce Clause substantial nexus. Section III surveys post-Quill state court developments and the rise of the economic nexus doctrine. Section IV explains why the physical presence requirement is more consistent with the Supreme Court's jurisprudence and is a superior standard. Finally, Section V concludes with how the Supreme Court should have ruled in KFC Corp. v. Iowa Department of Revenue and Lamtec Corp. v. Department of Revenue.

July 20, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Tax Court: Parents Cannot Claim Dependency Exemptions, Credits for Children Who Are Not U.S. Citizens or Residents

Tax Court Logo 2The Tax Court yesterday held that parents cannot claim dependency exemptions and child tax credits for their children who are not U.S. citizens during the tax year in question, even if the children become U.S. citizens in later years:

[T]he denominator common to the deduction and credit issues is whether a child, to qualify as a dependent for a parent's taxable (calendar) year, must be a U.S. citizen or a resident at some time during that year. The answer is "yes".

In both cases, the couples had multiple children (six and nine) and lived in Israel, and only one of the spouses was a U.S. citizen. The Tax Court upheld accuracy-related and late-filing penalties in one of the cases.

July 20, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

Clausing: A Challenging Time for International Tax Policy

Tax Analysts Kimberly A. Clausing (Reed College, Department of Economics), A Challenging Time for International Tax Policy, 136 Tax Notes 281 (July 16, 2012):

This article discusses options facing policymakers in the taxation of multinational firms. Clausing expresses concerns about adopting a territorial tax system without due consideration of the effects on U.S. economic activity and the corporate tax base.

All Tax Analysts content is available through the LexisNexis® services.

July 20, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Horwitz: What Ails the Law Schools?

Paul Horwitz Horwitz(Alabama), What Ails the Law Schools?, 111 Mich. L. Rev. ___ (2013):

Everyone engaged in legal education and not utterly asleep agrees that there is a "law school crisis." Building on recent works by Brian Tamanaha [Failing Law Schools] and Walter Olson [Schools for Misrule: Legal Academia and an Overlawyered America], this paper discusses its causes and potential solutions, using a typical dichotomy in recent populist movements -- the "one percent" versus "99 percent" meme -- as a lens. It examines arguments that the problem is economic and that it is primarily cultural; although I conclude the problem is economic and structural far more than cultural, I also argue that one of Tamanaha's primary recommendations for reform -- that law schools ought to display more experimentation and institutional pluralism, and that ABA accreditation requirements ought to make this more possible -- goes some way toward addressing both diagnoses. The paper is more descriptive than prescriptive, although I offer some thoughts on solutions. I emphasize three things: 1) law schools would be better off focusing on regional than national markets, although the US News rankings make regionally oriented approaches more difficult; 2) a serious increase in meaningful faculty governance and involvement is needed; and 3) the role and needs of the client have been surprisingly marginal in recent discussions of law school reform. The client needs to be a prominent part of reform discussions, which suggests, contrary to some extant views, that curricular reform ought to continue to be part of the discussion along with economic and structural reform.

This is an early and imperfect draft intended for discussion and feedback, given both the importance of the issue and the need for increased public discussion. Comments are welcome.

July 20, 2012 in Book Club, Legal Education | Permalink | Comments (3) | TrackBack (0)

NY Times: Obama Is Right, Romney Is Wrong, on Territorial Taxation

New York Times editorial:  Permanent Tax Holiday:

It’s not surprising that large multinational corporations strongly support a territorial tax system, which, they say, would make them more competitive with foreign rivals. What they don’t say, and what Mr. Obama stressed, is that eliminating federal taxes on foreign profits would create a powerful incentive for companies to shift even more jobs and investment overseas — the opposite of what the economy needs. ...

The corporate tax system needs reform, to raise more revenue, more fairly. The territorial tax system does not meet those criteria.

July 20, 2012 in Tax | Permalink | Comments (1) | TrackBack (0)

Thursday, July 19, 2012

The $150 Million Law School Challenge: Orin Kerr v. John Mayer

ElangdellFollowing up on Wednesday's post, How Law Schools Could Save Students $150 Million. Per Year.

First, I think it would be great if casebooks were free. The cost of textbooks is a real burden on students, and that cost is especially troubling in this legal economy. ... My point is just that however desirable Mayer’s proposal sounds, it wouldn’t work because it assumes a set of incentives that I don’t think currently exist. ...

Second, I am not suggesting that Mayer is a communist or a socialist. Nor am I suggesting that his proposal is the moral equivalent of Communism or socialism. Rather, I was just making a point about incentives. Mayer’s specific proposal assumes that people will do a set of things voluntarily that sounds (at least to me) similar to the assumptions of why people will do a set of things voluntarily in a socialist system.

Third, I think that in some circumstances, open source casebooks might work. It depends mostly on the field and how good is “good enough” in terms of quality. ... The hard part is that many subjects rely a lot on discussion and notes to explain the materials, and many areas have lots of moving parts that require an author to spend a very large effort assembling the materials in a particular way. In that kind of field, an open source casebook would be hard. You could have a book, but I suspect the quality would be very low.

Finally, several commenters ask why professors seen to have an incentive to write law review articles but might need a monetary incentive to write casebooks. I think the answer is that, for better or worse, schools currently value law review articles but not casebooks when they decide who to hire and who to promote.

John Mayer (Executive Director, CALI):

There are many different economic models for remunerating authors for their work. The current one involves 80-90% of the cost of the book going to intermediaries and processes that are becoming increasingly unnecessary or can be eliminated through age-old American ingenuity and innovation.

With ebooks, we can (eventually) eliminate the cost of printing, shipping and warehousing the physical books themselves.

With websites and freely available software, we can eliminate the proprietary digital production processes that were previously only available via commercial publishers.

With blogs like this and personal computers and the Internet (which we all own/access already), we can largely eliminate the need for marketing.

I am not saying that authors should not get paid for writing casebooks. I am saying that there is an enormous amount of inefficiency in the system that can be squeezed out and the savings distributed back to the authors and the students.

It's up to the law school to cut a deal with the faculty using leave time or stipends so that faculty have time and incentive to write the book. It's up to other faculty to decide if the fruits of this effort are worthy of adoption. Hardly socialism, much less communism. Just a different, and I believe better, economic means of production.

When CALI was getting started in the 1970's, no commercial entity existed to create computer-based tutorials, so law faculty used found-time or received grants to support their efforts. Today, we pay law faculty to write CALI lessons and we have over 900 of them available covering over 30 different legal subject areas. These were used over 1 millions times per year over the last five years. None of CALI staff do this for free and all of CALI's authors were compensated for their time
and content.

The issue that I wish ANON had picked up on, however, was innovation. Legal education is going through cataclysmic changes and law schools are going to need to innovate with their methods of delivery and the design of their curricula. This is hard to do if the core content is owned by an external agency that is tasked with extracting maximum dollar value – not serving the educational or access-to-justice mission of the law school. Freely licensed course materials allow for maximum flexibility to meet changing models of educational design and delivery. Lessig anyone?

I agree, let us compensate our authors, but why do we have to add a 80-90% markup on top of that AND lockup the result such that it cannot be used in new, better and different ways to suit our needs?

July 19, 2012 | Permalink | Comments (3) | TrackBack (0)

UConn Dean Jeremy Paul Abruptly Leaves to Assume Northeastern Deanship on Aug. 13

Jeremy Paul, Paul 2who previously announced that he would step down as dean at UConn following the 2012-13 academic year, is instead leaving to assume the deanship at Northeastern on August 13. From the National Law Journal:

Paul has been dean at Connecticut since 2007, and his five-year contract expired in the spring. In an e-mail message to faculty and student in March, Paul said he decided that the law school would benefit from a "new pair of eyes providing perspective on how we might best adapt to the rapidly changing landscape for legal education and the legal profession."

That message came on the heels of Connecticut's drop from No. 56 to No. 62 in U.S. News & World Report's law school rankings, although Paul said his decision was the result of many factors. One was that he had held leadership positions at Connecticut for 13 years and was ready for a new environment, he said.

Northeastern, a Boston school that is ranked No. 76 by U.S. News, has a unique curriculum in that each student must complete what is called a "co-op": four quarters of full-time legal employment. Students alternate between taking classes and working in legal jobs intended to give them a real-world taste of lawyering.

Above the Law:

It’s highly unusual for a dean to move in July for the upcoming academic year. ... Is it me, or does this line seem like a big “Eff You” to the powers-that-be at Connecticut and to anybody at the university who had a conniption over the school’s U.S. News rank? Northeastern is well-known as a school that emphasizes practice-ready skills; it feels like Paul is saying, “Peace out haters, I’m going to a better place where my talents will be appreciated.”

July 19, 2012 in Legal Education | Permalink | Comments (1) | TrackBack (0)

If Only Nixon Could Go To China, Maybe Only Romney Can Do Tax Reform

Wall Street Journal op-ed:  Romney Should Release His Tax Returns, by Joseph J. Thorndike (Tax Analysts):

Mr. Romney would be well advised to simply cough up a decade's worth of returns. In all likelihood, the only thing he's hiding is more of the sophisticated tax avoidance that he's already demonstrated and that rich people engage in every day. Laudable? No. But not illegal, either. ...

Depending on what is in Mr. Romney's unreleased returns, further tax disclosure might be uncomfortable for him or downright deadly. But it won't be nearly as deadly as the weeks of bashing that he can expect from critics if he continues to stonewall on full disclosure. ...

Legally, candidates are entitled to their tax privacy. But politically, privacy is a relic of the past....

And there may be a silver lining to disclosure for Mr. Romney. If he can survive the firestorm of ginned-up outrage that's sure to follow a major release, then a newly inaugurated President Romney might be well positioned to lead the charge for real tax reform. If only an ardent anticommunist like Nixon could go to China, then maybe only a pro-business Republican with lots of experience in legally avoiding taxes can get American taxpayers out of the Caymans.

July 19, 2012 in News | Permalink | Comments (3) | TrackBack (0)

Camic: Everything is Tax

Susannah Camic (Wisconsin), Everything is Tax, 49 Harv. J. on Legis. ___ (2012):

In contrast to major legislative reform packages in the 20th century, the Affordable Care Act of 2010 took the form of a tax bill. Although this legislation is the first massive social and regulatory overhaul completed through the tax code, in the past twenty-five years the U.S. Congress and Presidential administrations have substantially increased their use of tax law for non-revenue-raising purposes. Growing reliance on the tax code represents a structural transformation of how Congress and Presidential administrations have come to approach lawmaking goals. This transformation defies the near-consensus of previous tax scholarship, which, following Stanley Surrey, disapproves of embedding programs in the tax code. However, that dominant view rests on assumptions that have become outdated. This Article analyzes the ongoing structural transformation by observing and explaining the advantages that accrue from pursuing social and regulatory objectives through the tax code. In particular, this Article identifies a number of legislative and normative advantages that tax-embedded policies offer.

July 19, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Kaplan: The Top Ten Myths of Medicare

Richard L. Kaplan (Illinois), Top Ten Myths of Medicare, 20 Elder L.J. 1 (2012):

In the context of changing demographics, the increasing cost of health care services, and continuing federal budgetary pressures, Medicare has become one of the most controversial federal programs. To facilitate an informed debate about the future of this important public initiative, this article examines and debunks the following ten myths surrounding Medicare: (1) there is one Medicare program, (2) Medicare is going bankrupt, (3) Medicare is government health care, (4) Medicare covers all medical cost for its beneficiaries, (5) Medicare pays for long-term care expenses, (6) the program is immune to budgetary reduction, (7) it wastes much of its money on futile care, (8) Medicare is less efficient than private health insurance, (9) Medicare is not means-tested, and (10) increased longevity will sink Medicare.

July 19, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

LBJ, the IRS, and Churches: The Unconstitutionality of the Johnson Amendment

Erik W. Stanley (Senior Legal Counsel, Alliance Defense Fund), LBJ, the IRS, and Churches: The Unconstitutionality of the Johnson Amendment in Light of Recent Supreme Court Precedent, 24 Regent U. L. Rev. 237 (2012):

Part I of this Article examines the history of church tax exemption and demonstrates that exemption for churches is an unbroken practice with an extremely long historical pedigree. Thus it should not be lightly cast aside, and any threat to its existence should be taken seriously. Part I also traces the history of the restrictions on church tax exemption added by Congress in 1934 and 1954, including the history of the Johnson Amendment and the suspect circumstances surrounding its passage.

Part II analyzes the history of IRS enforcement of the Johnson Amendment, discussing the uneven and sporadic nature of that enforcement. The IRS’s vague and uneven enforcement scheme has resulted in a pervasive and palpable chill on the speech of pastors and churches as they have self-censored in order to avoid potential Johnson Amendment violations and the extreme consequences associated with such violations.

Part III builds on the prior two points and analyzes the Johnson Amendment in light of the recent Supreme Court cases of Citizens United v. FEC, Arizona Christian School Tuition Organization v. Winn, and Hosanna-Tabor Evangelical Lutheran Church & School v. EEOC. The Article concludes that these cases provide important indications that the Johnson Amendment is an unconstitutional violation of the Free Speech and Free Exercise Clauses of the First Amendment, and that it cannot be justified by reliance on tax subsidy theories of regulation.

It is not the goal of this Article to repeat the work of legal scholars who have analyzed the Johnson Amendment from various angles. The great weight of that legal scholarship leans decidedly in favor of the conclusion that the Johnson Amendment is unconstitutional as a violation of the First, Fifth, and Fourteenth Amendments of the United States Constitution as well as the Federal Religious Freedom Restoration Act. Rather, this Article offers a fresh look at the Johnson Amendment in light of recent Supreme Court precedent that has direct bearing on its constitutionality. This precedent—when viewed in light of the history of church tax exemptions, Congress’s adoption of the Johnson Amendment, and the IRS’s enforcement of the Johnson Amendment—demonstrates that the pastors who participated in Pulpit Freedom Sunday were justified in challenging the Johnson Amendment and should not have long to wait before it is declared unconstitutional or repealed.

July 19, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Tax Transparency in North Carolina

Tax Analysts Amy Hamilton (Tax Analysts), Transparency in North Carolina: Portrait of a State in Flux, 65 State Tax Notes 149 (July 16, 2012):

The issue of forced combination of separate entity returns began as a dispute between taxpayers and the North Carolina Department of Revenue, but has mushroomed into a public debate over how the DOR provides guidance to taxpayers -- or the lack thereof.

All Tax Analysts content is available through the LexisNexis® services.

July 19, 2012 in Tax, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Which Law Schools Are Most at Risk for Missing Their Fall 2012 Enrollment Target?

American Lawyer:  Do Not Trust Deans Bearing Versatile Juris Doctors, by Matt Leichter:

Using the data for full-time applications, acceptances, and matriculations contained in my previous article, I toyed with a new metric: the number of matriculants per 100 applications by law school, which I'll sometimes refer to as the "matriculant/application ratio." Higher ratios indicate the law school in question accepts applicants who are willing to attend, lower ratios indicate that either the law school rejects many applicants who would otherwise attend or accepts applicants who then choose not to attend. Charted against the acceptance rate, this is what the matriculant/application ratio has looked like on average between 2004 and 2010. One would think that the distribution would resemble a bell curve, with more selective schools accepting fewer applicants and accommodating schools accepting many applicants who ultimately choose not to matriculate, but the comparison is actually quite linear. However, recently it has become less so, as applicants are sending out more applications than in the past, which increases the number of acceptances law schools hand out and lowers their matriculant/application ratios.

Chart 1

The average matriculants per 100 applications over this period is 10.0, and the average deviation is 3.4. This means, for example, that the highest average scoring law schools like Liberty University (27.2) and Regent University (24.9) are really out there. ...

The thing we want to know is which law schools saw matriculant/application ratios increase while their acceptance rates also rose to prevent an enrollment shortfall. Taking the annualized rate of change between the two years for both statistics, we get the following chart:

Chart 2

To interpret this scatter/splatter plot, a majority of law schools (118) in this period saw a decline in their matriculant/applicant ratio, and in a time of increased matriculants and applications, this means most law schools did well, as we'd expect. So which law schools are way out there in the upper right? Going from right to left:

•    Valparaiso (+37 percent acceptance rate, +31 percent matriculation/application ratio)
•    Toledo (+29 percent, +15 percent)
•    Rutgers-Camden* (+28 percent, +34 percent)
•    Quinnipiac (+17 percent, +24 percent)
•    Appalachian (+16 percent, +5 percent)
•    Nebraska (+13 percent, +15 percent)
•    North Dakota (+11 percent, +11 percent)
•    Northern Illinois (+10 percent, +10 percent)
•    Liberty (+9 percent, +7 percent)
•    Western State (+9 percent, +14 percent)

July 19, 2012 in Legal Education | Permalink | Comments (3) | TrackBack (0)

House Holds Hearing Today on Tax Reform and the Manufacturing Sector

House LogoThe House Ways & Means Committee holds a hearing today on Tax Reform and the U.S. Manufacturing Sector:

This hearing will examine how the current tax system affects U.S. manufacturers, including U.S.-based public and closely held companies as well as foreign-owned U.S. manufacturers, and how comprehensive tax reform might affect their ability to expand and create jobs.

  • Kim Beck (Association for Manufacturing Technology)
  • Heather Boushey (Senior Economist, Center for American Progress)
  • Diane Dossin (Chief Tax Officer, Ford Motor Company)
  • Susan L. Ford (Vice President of Tax, Corning Inc.)
  • Henry W. Gjersdal, Jr. (Vice President of Tax and Real Estate, 3M)
  • Ralph E. Hardt (President, Jagemann Stamping Company)
  • Hugh Spinks (Vice President of Tax, Air Liquide USA Inc.)

In connection with the hearing, the Joint Committee on Taxation has released Background and Present Law Relating to Manufacturing Activities Within the United States (JCX-61-12):

This document ... describes and analyzes present Federal income tax rules applicable to businesses with respect to capital cost recovery, expensing provisions, tax credits related to capital investment, the treatment of research and development costs (including the research tax credit), and the treatment of income from domestic qualified production activities. Data from 2009 show that the manufacturing sector accounts for the largest share of depreciation deductions at $195.7 billion (27.5% of all such claims in 2009). Included in the $195.7 billion amount is $3.6 billion in section 179 deductions (7.0% of all such claims) and $40.7 billion in bonus depreciation deductions (20.0% of all such claims). Taxpayers claimed $14.2 billion of deductions for domestic production activities in 2009, almost two-thirds of which ($8.9 billion) was claimed by taxpayers in the manufacturing sector. Taxpayers in the manufacturing sector also claimed $5.6 billion in research credits (68.6% of all such claims in 2009).

July 19, 2012 in Congressional News, Tax | Permalink | Comments (0) | TrackBack (0)

Aspiring Law Profs Conference

AspiringArizona State is hosting the 4th Annual Aspiring Law Professors Conference on September 15:

Designed for Visiting Assistant Professors, Fellows and others who plan to go on the academic teaching market, but valuable to anyone considering a career as a law professor.

  • Learn to succeed in the entry-level law teaching market
  • Obtain an insiders perspective on the appointments process from faculty with extensive hiring experience
  • Participate in a mock interview or mock job talk and gain feedback from law professors

July 19, 2012 in Legal Education, Tax Conferences | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 18, 2012

How Law Schools Could Save Students $150 Million. Per Year.

Elangdell pressCALI, How Law Schools Could Save Students $150 Million:

There are over 140,000 law students in the 201 ABA accredited law schools in the US. According to the Public Interest Research Group (PIRG), higher education students spend an average of $1100 per year on books. Do the math and this comes out to 140,000 x $1100 = $154,000,000.

What if most of the books that students need for law school were free? Well, obviously, this would save students the cost of purchasing $154,000,000 worth of books each and every year.

How can this be done?

What if every law school in the country – all 201 of the ABA accredited law schools – nominated just one faculty at that law school to write a casebook and donated that book, in electronic format, to the commons under a Creative Commons license. The cost to law schools would not be zero, but collectively, the value to law students would be enormous.

The basic plan would be thus…

Every law school puts forth a Fellow who will participate in a team of faculty to write a casebook in a substantive area of law over 12 months.

The law school gives the Fellow leave from teaching a course or an institutional stipend for writing the book.  The details are to be worked out between the school and the Fellow.

These 201 Fellows form the first cadre of a three year, 100 casebook effort.

Faculty will form Fellowship Teams to work on a book together to share the workload and provide collaborative feedback and quality control to each other. The assumption here is 3 authors per book, so 201 law schools = 67 books and 50% completion/attrition, so 33-34 new books per year x 3 years = 100 books.

A web-based service to enable Fellows to setup their teams or find others who want to write in the same subject area … a kind of for casebook authors. CALI could help with this.

Since we need to transition from paper books or “pbooks”, we can use a service like to create hardcover or softcover prints at low cost. CALI’s eLangdell Press offers softcover prints of 500 page books for under $15 (not including shipping) from, so we have some experience with this.

Authors can retain copyright in their own works, but must license the book under a Creative Commons license to allow redistribution, remixing and re-use by anyone else. This is why one of the formats for distribution must be Microsoft Word’s .doc format.  This is critical to creating an ecology of course materials that permits improvement and customization for local needs.

The benefits of such a project are considerable:

This sends a message to law students that law schools are doing something innovative, serious and substantive to increase the value and quality of legal education and reduce the cost.

This idea leverages the benefits of electronic books and ubiquitous internet connectivity and exposes law faculty to 21st century technologies that are becoming de rigueur to their students.

The result provides a remixable foundation of electronic course materials that is a starting point for innovation in courses and curriculum design.

(Disclosure: I am Vice-President of the Board of Directors of CALI.)

July 18, 2012 in Legal Education | Permalink | Comments (8) | TrackBack (0)

Kleinbard & Canellos: Why Won't Romney Release More Tax Returns?


CNN op-ed:  Why Won't Romney Release More Tax Returns?, by Edward D. Kleinbard & Peter C. Canellos (Wachtell, Lipton, Rosen & Katz, New York):

Romney's 2010 tax return, when combined with his FEC disclosure, reveals red flags that raise serious tax compliance questions with respect to his possible tax minimization strategies in earlier years. The release in October of his 2011 return will at best act as a distraction from these questions.

So, what are the issues?

The first is Romney's Swiss bank account. Most presidential candidates don't think it appropriate to bet that the U.S. dollar will lose value by speculating in Swiss Francs. ... The Swiss bank account raises tax compliance questions, too. ... The IRS announced in 2009 a partial tax amnesty for unreported foreign bank accounts, in light of the Justice Department's criminal investigations involving several Swiss banks. To date, some 34,500 Americans have taken advantage of such amnesty programs. Did the Romneys avail themselves of any of these amnesty programs? ...

Second, Romney's $100 million IRA is remarkable in its size. Even under the most generous assumptions, Romney would have been restricted to annual contributions of $30,000 while he worked at Bain. How does this grow to $100 million? One possibility is that ... Romney stuffed far more into his retirement plans each year than the maximum allowed by law by claiming that the stock of the Bain company deals that the retirement plan acquired had only a nominal value. ...

Third, the vast amounts in Romney's family trusts raise a parallel question: Did Romney report and pay gift tax on the funding of these trusts or did he claim similarly unreasonable valuations, which likewise would have exposed him to serious penalties if all the facts were known?

Fourth, the complexity of Romney's one publicly released tax return, with all its foreign accounts, trusts, corporations and partnerships, leaves even experts (including us) scratching their heads. Disclosure of multiple years' tax returns is part of the answer here, but in this case it isn't sufficient. Romney's financial affairs are so arcane, so opaque and so tied up in his continuing income from Bain Capital that more is needed, including an explanation of the $100 million IRA.

Finally, there's the puzzle of the Romneys' extraordinarily low effective tax rate. For 2010, the Romneys enjoyed a federal tax rate of only 13.9% on their adjusted gross income of roughly $22 million, which gave them a lower federal tax burden (including payroll, income and excise taxes) than the average American wage-earning family in the $40,000 to $50,000 range. The principal reason for this munificently low tax rate is that much of Romney's income, even today, comes from "carried interest," which is just the jargon used by the private equity industry for compensation received for managing other people's money. ...

For a nominee to America's highest office, a clear and transparent reporting of his finances should be nothing more than routine.

(Hat Tip: Josh Blank, David Miller.)

July 18, 2012 in Political News, Tax | Permalink | Comments (12) | TrackBack (0)