Paul L. Caron

Wednesday, October 31, 2012

More on Deborah Jones Merritt: The Scholarship Smokescreen

Brian Leiter (Chicago) today has an extended discussion of my post on Deborah Jones Merritt (Ohio State), The Scholarship Smokescreen and the ensuing debate in the TaxProf Blog comments between an anonymous business law professor and Professor Merritt.

Update:  Paul Campos (Colorado) responds on his blog.

October 31, 2012 in Legal Education | Permalink | Comments (0) | TrackBack (0)

Tax Profs Don Halloween Costumes in Class Today

Below the fold:  Halloween costumes worn to class today by these Tax Profs:

  • Beau Baez (Charlotte)
  • Danshera Cords (Albany)
  • Leandra Lederman (Indiana-Bloomington)
  • Susannah Tahk (Wisconsin)
  • Stephanie Willbanks (Vermont)

Continue reading

October 31, 2012 in Legal Education, Tax | Permalink | Comments (4) | TrackBack (0)

NLJ: Several Law Schools Ditch University Campus for Downtown Location

Green AcresNational Law Journal:  Law Schools Discovering the Charms of City Life:

Downtown law schools are hot right now.

A number of law schools [Charlotte, Concordia, Oklahoma City, St. Louis, South Carolina] are preparing to ditch their university campuses for downtown digs that will place them within steps of state and federal courthouses, law firm offices, government agencies and major corporations. That proximity will make it easier for law schools to integrate into the local legal landscape—and more convenient for law students to network or extern, according to administrators.

October 31, 2012 in Legal Education | Permalink | Comments (0) | TrackBack (0)

Davidoff: The Risks of Using Retirement Funds to Start a Business

NY Times DealBookNew York Times DealBook  The Risks of Tapping Your Retirement Fund for an Alternative Use, by Steven M. Davidoff (Ohio State):

Retirement funds are being used increasingly for anything but retirement. Instead, 401(k)’s and individual retirement accounts are becoming money pots used to invest in business start-ups, speculate in gold and buy private equity investments.

Such maneuvers come with big tax advantages. But they may also leave their users penniless in retirement, while their ability to evade taxes can cost the government. ...

IRAs and 401(k)s were never meant to be used to start a business. ... The strategies to do so and not run afoul of IRS regulations are varied, but the main one is to start a business and have it adopt a 401(k) plan. The existing 401(k) plan is rolled into the new one, which is invested in the new business. Voilà -- instant financing. The downside, however, is that there is no money for retirement if the business fails.

And there is evidence that most of these businesses do fail. The Internal Revenue Service terms one form of this scheme as a Rollovers as Business Start-Ups plan, or perhaps with some unintended irony, a ROBS plan. In 2009, the IRS studied ROBS plans and found that most of these businesses had gone bankrupt, losing the person’s retirement savings. In most cases the money was lost before the business even got off the ground. Nonetheless, the I.R.S. does not prohibit ROBS plans, but it has called for more scrutiny of the structure.

(Hat Tip: Mike Talbert.)

October 31, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

WSJ: Did You Know Hurricane Sandy Favors Higher Marginal Tax Rates?

Wall Street Journal editorial:  Did You Know Hurricane Sandy Favors Higher Marginal Tax Rates?:

Our former editor Robert Bartley once quipped (fondly) about the writer Jude Wanniski that he thought a capital-gains tax cut could intercept a Soviet SS-20 missile in mid-flight. We were reminded of that monomania Tuesday as the political left more or less declared in unison that the ravages of Hurricane Sandy prove that America needs bigger government.

We know liberals are worried that President Obama might lose next week, but are they so panicky that they want to suggest even before the storm has passed that Mitt Romney and Republicans are against disaster relief? Apparently so. It's an especially low-rent tactic, akin to blaming the tea party for Jared Lee Loughner's shooting of Gabby Giffords. But it's equally absurd to argue that a once-in-a-century storm means you can't block-grant Medicaid. ...

The rush to use Hurricane Sandy to justify a bigger federal government makes us wonder if there's an excuse liberals won't use to grow Leviathan? The reality of the federal fisc is that whoever wins next Tuesday is going to have to choose between functions best done by the federal government and those that can be done better by others. A government that can't distinguish between a big storm and Big Bird is simply too big.

October 31, 2012 in Tax | Permalink | Comments (1) | TrackBack (0)

Law Profs: Obama 72%, Romney 19%

Romney ObamaLaw Profs back President Obama over Mitt Romney 72% to 19%, according to Brian Leiter's poll.

Update #1:  Brian Leiter closed the poll with 420 votes cast and a final tally of Obama 69%, Romney 22%.  See The Law Professors Have Spoken:

I'm impressed (or distressed) by the strong showing for the Republican, and surprised by the tepid support for both Johnson and Stein.  As further evidence that legal academics lean to the right, do contrast the results when I polled philosophers on the election!

Update #2:  Ann Althouse (Wisconsin) has followed up with her own poll:  the vote of her readers is currently Romney 88%, Obama 3% (the President is losing to Libertarian Gary Johnson (7%)).

October 31, 2012 in Political News, Tax | Permalink | Comments (14) | TrackBack (0)

Bartlett: Romney's Tax Plan Won't Work Like Reagan's Did

Tax Analysts Bruce Bartlett, Romney’s Tax Plan Won’t Work Like Reagan’s Did, 137 Tax Notes 541 (Oct. 29, 2012):

This article compares the tax plan put forward by Republican presidential nominee Mitt Romney with that enacted by Ronald Reagan. It finds only superficial similarities. Consequently, Romney's plan will not achieve the same economic results as Reagan's.

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

October 31, 2012 in Scholarship, Tax | Permalink | Comments (3) | TrackBack (0)

Gamage: ObamaCare's Perverse Incentives Will Hurt the Working Class

ObamaCareWall Street Journal op-ed:  ObamaCare's Costs to the Working Class, by David Gamage (UC-Berkeley):

It is time to move past the debate over whether ObamaCare was a good or a bad idea. I count myself as an ObamaCare supporter, but this doesn't blind me to the law's flaws. Regardless of who wins the presidential election, bipartisan compromise will be necessary to reform health care in a constructive way.

The most important provisions of ObamaCare are scheduled to take effect in 2014. I have been researching ObamaCare and assisting with its implementation, and have come to this realization: Without further reforms, the law will create unnecessary costs for working-class Americans. ...

Conservative and liberal economists have long criticized the tax exclusions for employer-sponsored coverage on the grounds that they drive up health spending and provide far more tax benefit for higher-income than for lower-income taxpayers. Sen. John McCain proposed replacing these subsidies with better-designed tax credits when he ran for president in 2008. Yet ObamaCare failed to reform these older subsidies for employer-sponsored insurance.

ObamaCare's perverse incentives result mainly from creating a mismatch between the subsidies for individual health insurance and those for employer-sponsored insurance. Beginning in 2014, lower-income Americans will be eligible for far greater subsidies if they aren't offered employer-sponsored coverage, qualifying them for the new subsidies available for individual insurance. In contrast, higher-income taxpayers will be eligible for far greater subsidies if they get employer-sponsored coverage.

To resolve these perverse incentives, we should adopt a variation of Sen. McCain's proposals and replace the tax exclusions for employer coverage with tax credits. To the extent possible, we should provide the same subsidies for employer-based insurance as for individual insurance.

October 31, 2012 in Tax | Permalink | Comments (1) | TrackBack (0)

NY Times Debate: Should the Adoption Tax Credit Be Renewed?

Room for Debate New York Times, Room for Debate: Should the Adoption Tax Credit Be Renewed?:

Created 15 years ago, the adoption tax credit now allows parents to claim a credit of $12,650 from their federal income taxes to defray the costs of any adoption. (Although it no longer allows families to claim a refund if the credit exceeds their tax bill, as it had in earlier years.) The credit expires at the end of the year for adoptions other than those of foster children with special needs.

Should the adoption tax credit be renewed with the refund provision included so that even families of modest income can claim it?

(Hat Tip: Ann Murphy.)

October 31, 2012 in Tax | Permalink | Comments (1) | TrackBack (0)

Tuesday, October 30, 2012

Hynes: Taxing Control

Richard M. Hynes (Virginia), Taxing Control, 37 J. Corp. L. ___ (2012):

Early corporate law scholarship argued both that anti-takeover devices are inefficient (they reduce the value of the firm) and that firms adopt efficient governance terms before they make their initial public offering. However, subsequent research revealed that most firms adopt anti-takeover devices before their initial public offering. Prior scholars offer explanations for this puzzle, but they fail to consider incentives created by the tax code. If the government taxes the pecuniary benefits of ownership (income, capital appreciation, etc.) more effectively than the non-pecuniary benefits of control (psychic pleasure from control, etc.), the tax code will cause the manager to retain too much control. This essay discusses corrective measures that the government could adopt including the taxation of anti-takeover devices. Unfortunately, these corrective measures would create their own distortions, and the current system may be second best. If we do not take corrective action, we should recognize the distortion of corporate control as an additional cost of taxation.

October 30, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

NY Times: Lap Dances Are 'Art' and Thus Exempt From Sales Tax

Following up on last week's post:  NY's Highest Court Rules 4-3: Lap Dances Are Not 'Art' and Thus Not Exempt From Sales Tax:  New York Times editorial, ‘A Dance Is a Dance’:

The New York State Court of Appeals ruled last week that Nite Moves, a strip club near Albany, must pay sales tax on admissions fees it collects from customers. State law exempts from sales tax “dramatic or musical arts performances,” including “choreographic” performances. The question was whether a private lap dance or a pole dance qualifies as a “dance.” Clearly, they should.

The court’s 4-to-3 majority held that the dancing at Nite Moves is not art but — like baseball games, stock-car races and ice shows — is a form of entertainment that falls within “the broad sweep of the tax.”

In this case, the dissent by Judge Robert Smith has the more convincing argument. The majority decision, he wrote, rests on “a distinction between highbrow dance and lowbrow dance” the state tax statute does not make.

October 30, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

Bartlett: The Real Barrier to Tax Reform: Us

PogoNew York Times:  The Real Barrier to Tax Reform, by Bruce Bartlett:

Across the political spectrum, it is generally accepted that the basic goal of tax reform should be to broaden the tax base by eliminating tax preferences and lowering statutory tax rates. It is also believed that the principal barrier to such a reform is the resistance of special interests to the elimination of any particular preference that benefits them. But what if, to paraphrase Pogo, the special interest is us? ...

[Here] are the top 10 special provisions of the tax code that reduce revenues, with the estimated annual revenue loss.

... These and other tax expenditures enjoy wide support, and it is almost impossible to imagine them being abolished, even in return for lower statutory tax rates. ... President Obama and Mr. Romney have promised to protect the mortgage interest deduction. The problem is that when you take one popular deduction off the table, that becomes the best possible argument for keeping the next most popular deduction or exclusion and so on. Taking the top 10 off the table means taking more than 70 percent of the dollar value of all tax expenditures off the table, thus greatly limiting the potential for tax reform to lower rates.

October 30, 2012 in Tax | Permalink | Comments (3) | TrackBack (0)

IMF: Taxes and Economic Growth -- A Cross-Country Perspective

International Monetary Fund:  Tax Composition and Growth: A Broad Cross-Country Perspective:

We investigate the relation between changes in tax composition and long-run economic growth using a new dataset covering a broad cross-section of countries with different income levels. We specifically consider 69 countries with at least 20 years of observations on total tax revenue during the period 1970-2009—21 high-income, 23 middle-income and 25 low-income countries. To our knowledge this is the most comprehensive and up-to-date dataset on tax composition and growth. We find that increasing income taxes while reducing consumption and property taxes is associated with slower growth over the long run. We also find that: (1) among income taxes, social security contributions and personal income taxes have a stronger negative association with growth than corporate income taxes; (2) a shift from income taxes to property taxes has a strong positive association with growth; and (3) a reduction in income taxes while increasing value added and sales taxes is also associated with faster growth.
IMF Chart

(Hat Tip: Michael J. McIntyre.)

October 30, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

Mundstock: Tax Aspects of the FASB/IASB Proposal on Lease Accounting

George Mundstock (Miami), The Tax Import of the FASB/IASB Proposal on Lease Accounting, 32 Va. Tax Rev. ___ (2013):

In August of 2010, FASB and the IASB jointly proposed completely new financial accounting rules for simple leases. Basically, the proposal would treat all leases as involving both the use of the leased property and a financing of that use. One consequence of this treatment is more accelerated recognition of rent revenue and expense than currently. This article reviews the proposal, considers how, as financial accounting, the proposal would impact U.S. Federal, state, and local tax-related matters, and then explores whether the proposal should be adopted as U.S. income tax law. The proposal would improve U.S. tax law, including providing the foundation for better rules for sourcing the income of multinational businesses. Even if FASB and IASB do not implement their proposal, its approach would provide the basis for valuable tax reform.

October 30, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Calvin Johnson 'Skeptical' of Mitt Romney's Taxes

Huffington Post:  Tax Expert Calvin Johnson 'Skeptical' Of Mitt Romney's Taxes:

A respected tax attorney and deficit hawk wrote a letter to the editor of Tax Notes on Monday saying that, "There is good reason to be skeptical" of Mitt Romney's claim to have paid all the taxes he legally owes.

The letter, by University of Texas Law School Professor Calvin Johnson, focuses on two trusts Romney has set up: one for his children, which is worth over $100 million, and an $87 million retirement trust. These trusts have grown at an enormous rate -- Johnson notes that they have been more than 10 times as profitable as Warren Buffett's investments over the same time frame. Johnson writes that Romney may have played fast and loose with the law by undervaluing Bain Capital assets that were contributed to the trusts. By undervaluing the assets, Romney could avoid paying gift taxes.

(Hat Tip: Marty McMahon.)

October 30, 2012 in Political News, Tax | Permalink | Comments (2) | TrackBack (0)

New TaxProf Blog Motto

Kyle Graham (Santa Clara) proposes new mottos for some law blogs:

TaxProf Blog

Surprisingly Interesting, at Least as Compared to Tax Law

Check out the new mottos suggested for Above the Law, Concurring Opinions, The Faculty Lounge, How Appealing, Brian Leiter’s Law School Reports, PrawfsBlawg, SCOTUSblog, and The Volokh Conspiracy. (Hat Tip: PrawfsBlawg.)

October 30, 2012 in Legal Education, Tax | Permalink | Comments (2) | TrackBack (0)

Herzig: Rethinking FIRPTA

David J. Herzig (Valparaiso), Rethinking FIRPTA, 4 Colum. J. Tax L. ___ (2013):

Since 1980 the United States has taxed U.S. real property gains of foreign investors. A nonresident must pay tax on the capital gain from the sale of U.S. real property or rights in U.S. real property, as well as on the sale of shares in non-publicly held domestic corporations that hold significant U.S. real property assets. The United States imposes a withholding liability on the purchaser based on a percentage of the purchase price. Moreover, by owning U.S. real property, foreign investors are subject to Internal Revenue Service (“IRS”) investigatory powers. Because of these rules foreign investors spend significant resources to structure investment in U.S. real property assets to avoid being deemed an owner of the underlying real property for taxation purposes. This has rendered the underlying statute, The Foreign Investment in Real Property Act of 1980 (“FIRPTA”), elective. This electivity results in the U.S. exhibiting tax haven characteristics for inbound real estate investments. Rather than tightening the rules to eliminate this friction, Congress has recently proposed even less stringent requirements. The resulting narrative by practitioners and policy makers is that FIRPTA should be eliminated. The United States currently needs more, not less, collection of taxation. The fact that FIRPTA is either easily arbitraged or not properly collected should not result in the repeal. This article proposes a new way of addressing FIRPTA by expanding the use of reporting requirements to capture the leakage and provide a mechanism for effectively eliminating the use of structuring to avoid the tax. Through the introduction of systems recently employed in the FATCA regime, Congress can through an effective penalty structure ensure proper collection of taxation and achieve the stated goal of FIRPTA – an equal tax burden independent of the status of the investor. The goal of the proposal is to have a more cohesive and coherent FIRPTA regime by replacing a gross income tax regime with a net income tax regime with a backup withholding. Given the United States’ position as a market leader in a limited market, there should be a more aggressive tax collection stance taken. The U.S. real property market is relatively inelastic as compared to equities; thus, an aggressive United States position will not have much if any downside.  

October 30, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Romney Benefits From Zeroed-Out CRUT With Mormon Church

Bloomberg:  Romney Avoids Taxes via Loophole Cutting Mormon Donations, by Jesse Drucker:

In 1997, Congress cracked down on a popular tax shelter that allowed rich people to take advantage of the exempt status of charities without actually giving away much money. Individuals who had already set up these vehicles were allowed to keep them. That included Mitt Romney, then the chief executive officer of Bain Capital, who had just established such an arrangement in June 1996.

The charitable remainder unitrust, as it is known, is one of several strategies Romney has adopted over his career to reduce his tax bill. While Romney’s tax avoidance is legal and common among high-net-worth individuals, it has become an issue in the campaign. President Barack Obama attacked him in their second debate for paying “lower tax rates than somebody who makes a lot less.”

In this instance, Romney used the tax-exempt status of a charity -- the Mormon Church, according to a 2007 filing -- to defer taxes for more than 15 years. At the same time he is benefitting, the trust will probably leave the church with less than what current law requires, according to tax returns obtained by Bloomberg this month through a Freedom of Information Act request.


In general, charities don’t owe capital gains taxes when they sell assets for a profit. Trusts like Romney’s permit funders to benefit from that tax-free treatment, said Jonathan Blattmachr, a trusts and estates lawyer who set up hundreds of such vehicles in the 1990s. “The main benefit from a charitable remainder trust is the renting from your favorite charity of its exemption from taxation,” Blattmachr said. Despite the name, giving a gift or getting a charitable deduction “is just a throwaway,” he said. “I used to structure them so the value dedicated to charity was as close to zero as possible without being zero.” ...

Romney’s CRUT, which is only a small part of the $250 million that Romney’s campaign cites as his net worth, has been paying him 8 percent of its assets each year. As the Romneys have received these payments, the money that will potentially be left for charity has declined from at least $750,000 in 2001 to $421,203 at the end of 2011. ...

Romney’s trust was projected to leave to charity an amount with a present value of a little less than 8% of the initial contribution. ... Thus, the specifics of Romney’s trust wouldn’t have passed legal muster if it had been set up 13 months later. ... Because the trust’s investments have been earning a return far below its annual payouts to the Romneys, its principal has dwindled rapidly....

In 2001, five years after it was established, the trust had a value of between $750,000 and $1.25 million. Since then, it has pursued a conservative investment strategy -- regardless of the ups and downs of the stock market -- buying a mix of money- market funds, federally-backed bonds and federal bond funds. Since 2007, it has moved its assets entirely into cash. By 2011, its investments earned a return of $48, down from between $60,001 and $100,000 in 2001. It paid $36,696 to the Romneys in 2011. The current investing strategy favors the Romneys over the charity because they get a guaranteed payout. ... 

If the CRUT maintains the same investing strategy, assets will continue to shrink, said Jerome M. Hesch, a tax and estate planning attorney at the law firm Carlton Fields. The trustee acted prudently in protecting against losses during a stock market decline, he said.Nevertheless, “what’s going to go to charity is probably close to nothing,” Hesch said.

(Hat Tip: Bob Kamman.)

October 30, 2012 in Political News, Tax | Permalink | Comments (2) | TrackBack (0)

Welcome to the Law Prof Blogosphere: Rob Anderson's Witnesseth -- Law, Deals & Data

AndersonMy Pepperdine friend and colleague Rob Anderson (J.D. 2000, NYU; Ph.D. 2008, Stanford) has joined the law prof blogosphere with Witnesseth: Law, Deals & Data. From Rob's inaugural post, Practice-Ready Scholarship:

In this blog, I hope to create a forum to disseminate practical insights from quantitative legal research on corporate law, capital markets, finance, and mergers & acquisitions. This blog is inspired in part by the last several years’ debate about what law schools should do to produce “practice-ready” law school graduates. Although I see sound arguments on all sides of that debate, I have started this blog based on the conviction that there is a need for law professors, especially in corporate law, corporate finance, and M&A, to devote more resources toward producing practice-ready scholarship.

By “practice-ready scholarship,” I mean scholarly research that has the potential to influence the practical aspects of transactional law practice. Both parts of the term are important. I plan to focus on research that is “practice ready” in the sense that it can have a tangible impact on legal practice at the concrete, rather than merely an abstract or theoretical level. On the other hand I plan to focus on work that is “scholarship” in the sense that it aims to generate new knowledge rather than merely summarizing doctrine or recapitulating existing information. Ultimately, the hope is that this blog will be a small contribution toward bridging the gulf between law schools and lawyers in transactional practices.

In the last couple of years there has been much debate about whether law professors do (or should) produce articles that are useful to practitioners and judges (see here for a good summary). I think reasonable people could disagree about all of these issues, including whether all legal scholarship needs to have a practical application or “point.” But I have started this blog because I don’t think law schools can retain their credibility as professional schools if they focus solely on jousting over normative theory rather than generating positive insights with relatively immediate applications to practice.

I see quantitative academic scholarship as uniquely positioned to provide valuable information to the bench and bar that is otherwise unavailable. I believe that insights from empirical analysis of deals are desperately needed by practitioners. I also believe that law professors have a comparative advantage in performing this empirical analysis because practitioners lack the incentives, time, and inclination to collect, analyze, and report on data for a public audience. Equally important is the existence of a forum to translate these theoretical and empirical insights into terms that can be directly applied by practitioners. The typical transactional lawyer often needs quick answers and cannot persuade clients to pay them to read 60-page law review articles to indulge the lawyer’s intellectual curiosity.

I started this blog with the hope of providing a forum to bridge the gap between scholarly inquiry and practice—especially transactional practice in corporate law, corporate finance, and M&A, where I practiced myself. This blog is designed to communicate useful results from my own original research in progress, as well as commenting on insights from other academics’ research that might otherwise be overlooked by busy practitioners. The goal, overall, is to bring data and theory to practice, without sacrificing either scholarly rigor or practical usefulness.

The plan for the blog is to put together a multiple series of posts, each series loosely organized around a collection of related papers or a data set. Each post is designed to have an independent, practical “take away,” but the entire serial collection will culminate in the overall theoretical or scholarly insight. In the next post, I start a series on the surprising insights into corporate law that can be gleaned with the help of a laptop computer and a hundred thousand or so examples of the humble Form D.

Rob is an important young scholar. His most recent work is The Merger Agreement Myth, 98 Cornell L. Rev. ___ (2013) (with Jeffrey Manns (George Washington)):

Practitioners and academics have long assumed that the legal terms of acquisition agreements add value to mergers, yet legal scholarship has failed to subject this premise to empirical scrutiny. The conventional wisdom is that markets must value the tremendous amount of time and money that M&A lawyers invest in negotiating and tailoring the legal provisions of acquisition agreements to address the distinctive risks facing each merger. Otherwise, the merging parties would not spend so much on legal fees. But the empirical question remains of whether the legal terms of acquisition agreements add any value beyond the financial terms of mergers (negotiated by investment bankers). For this reason we designed a modified event study of target company stock prices that shows that M&A lawyers’ extensive negotiations on the legal terms of acquisition agreements do not add significant value to mergers. Our analysis of target company stock prices leverages the fact that merger announcements (which lay out the financial terms) are generally disclosed one to four trading days before the disclosure of acquisition agreements (which delineate the legal terms). We focused on a data set of cash-only public company mergers spanning the decade from 2002 to 2011 to ensure that the primary influence on target company stock prices is the expected value of whether a legal condition will prevent the deal from closing. Our analysis shows that there is no economically consequential market reaction to the disclosure of the acquisition agreement. Markets appear to recognize that parties publicly committed to a merger have strong incentives to complete the deal regardless of what legal contingencies are triggered. We argue that the results suggest that M&A lawyers are fixated on the wrong problems by focusing too much on negotiating “contingent closings” that allow clients to call off a deal, rather than “contingent consideration” that compensates clients for closing deals that are less advantageous than expected. This approach can enable M&A lawyers to protect clients against the effects of the clients’ own managerial hubris in pursuing mergers that may (and often do) fall short of expectations.

October 30, 2012 in Legal Education | Permalink | Comments (0) | TrackBack (0)

Preserving Tax Exempt Status for Your Nonprofit Client

Tim Tarvin (Arkansas-Fayetteville), Preserving Tax Exempt Status for Your Nonprofit Client, 2010 Ark. L. Notes 121 (2010):

In order to preserve a nonprofit’s tax-exempt status, counsel for the organization should stay current on how to appropriately file the IRS Form 990. Many American nonprofit organizations are at risk of losing their tax-exempt status due to changes in the tax code and filing deadlines. The IRS released a new version of the Form 990 in August of 2008, which became effective on December 31 the same year. This article tracks the changes on the form, as well as offers advice on who should file, when, and how. New tax law requires filing the Form 990 every year. Failing to file for three consecutive years will result in the loss of tax-exempt status. However, counsel for nonprofits should be aware that the IRS has indicated a one-time relief is available for specific Form 990 filers whose filing deadlines are after May 17, 2010 and prior to October 15, 2010. This article also includes several online sources where information on how to properly maintain a tax-exempt status can be found. Counselors for nonprofit organizations should review available resources in order to preserve the tax-exempt statuses of their clients.

October 30, 2012 in Scholarship, Tax | Permalink | Comments (1) | TrackBack (0)

Monday, October 29, 2012

Kotlikoff Presents On the General Relativity of Fiscal Language Today at Loyola-L.A

KotlikoffLawrence Kotlikoff (Boston University, Department of Economics) presents On the General Relativity of Fiscal Language at Loyola-L.A. today as part of its Tax Policy Colloquium Series:

A century ago, everyone thought time and distance were well defined physical concepts. But neither proved absolute. Instead, measures/reports of time and distance were found to depend on one’s reference point, specifically one’s direction and speed of travel, making our apparent physical reality, in Einstein’s words, “merely an illusion.”

Like time and distance, standard fiscal measures, including deficits, taxes, and transfer payments, depend on one’s reference point/reporting procedure/language/labels. As such, they too represent numbers in search of concepts that provide the illusion of meaning where none exists.

This paper, dedicated to our dear friend, David Bradford, provides a general proof that standard and routinely used fiscal measures, including the deficit, taxes, and transfer payments, are economically ill-defined. Instead these measures reflect the arbitrary labeling of underlying fiscal conditions. Analyses based on these and derivative measures, such as disposable income, private assets, and personal saving, represent exercises in linguistics, not economics.

Edward Kleinbard (USC) and Arnold Harberger (UCLA, Department of Economics) are the commenters.

October 29, 2012 in Colloquia, Scholarship, Tax | Permalink | Comments (1) | TrackBack (0)

The Top Five Law School Marketing Failures

The Daily Caller:  The Top Five Law School Marketing Failures:

Lawyerin’ ain’t easy these days for a tremendous number of recent law school graduates.

New attorneys are graduating with staggering debt. Last year, graduates of private law schools left school almost $125,000 in debt. For public law school grads, the debt average was over $75,700.

Jobs are hard to find. In 2011, just over half of all newly-minted graduates had found permanent, full-time legal work up to nine months after getting their diplomas.

It’s not a good time to be a law school, either. The message that law school is more likely to lead to massive debt and unemployment than a prestigious six-figure income has not been lost on undergrads and people looking for a career change.

Significantly fewer people have been taking the LSAT the last two years. In 2011, the number of people who took the LSAT fell 16 percent, the largest drop in a decade. Applications are down precipitously — about 16 percent as well.

In recent years, law schools have resorted to some unconventional methods to scare up and otherwise impress potential future law students. Here are of the more interesting ones.

  1. Thomas Cooley (more here)
  2. Rutgers-Camden (more here, here, and here)
  3. Louisville (more here)
  4. Illinois & Villanova (tie) (more here and here)
  5. New York Law School

October 29, 2012 in Legal Education | Permalink | Comments (0) | TrackBack (0)

WSJ: Death Tax Resurrection

Wall Street Journal editorial:  Death Tax Resurrection:

For all the worry in Washington and Wall Street about the January tax cliff, almost no one is paying attention to the impending reincarnation of the death tax. This is one more tax increase that will live or die depending on who wins on November 6. ...

Mitt Romney wants to repeal this wealth grab once and for all, while Mr. Obama now proposes a 45% rate with a $3.5 million exemption. Even that is too low for some Democrats in Congress. The President declared in debate that killing the estate tax is another Romney tax cut for the rich. But new research on the fiscal and economic effect of the death tax underscores how wrong Mr. Obama is.

The revenue generated by the estate tax is too trivial to make even a dent in the $1.1 trillion deficit. In 2011 the tax raised a scant $7.4 billion and the best estimate for fiscal 2012 is about $11 billion. ...

It's worse than that because the nonpartisan Tax Foundation calculates that the death tax is a long-term revenue loser. "Tax revenue is likely to increase" upon repeal of the tax, the Foundation finds. At least three other recent studies agree. How is this possible?

First, repeal or even a substantial reduction would be coupled with elimination of a provision called the "step-up basis at death" for calculating capital gains. ... There would be no grave-robber tax imposed at death, but all gains from a business or stocks or real estate would get taxed at the capital-gains rate (now 15%) when eventually sold by the heirs.

Abolishing the estate tax would also mean higher income-tax revenues. Under current law, billionaires like Warren Buffett and Bill Gates escape the tax by diverting their wealth into charitable foundations. But when income-generating assets are sheltered in this way, these foundations with a few exceptions don't pay tax on the future income from dividends, capital gains or interest. Eliminate the death tax and fewer people will shelter their money in foundations, meaning the money will continue to earn taxable income.

Most important, because the estate tax is a penalty on saving and capital investment, the economy grows more slowly over time. This is why so many industrialized nations, including Canada and Russia, have thrown out this tax as more trouble than it is worth....

The strongest case against the death tax is moral. ... Mr. Obama is so obsessed with redistributing income that he thinks it is unfair to leave behind a family business for the kids. What is truly unfair is when a family-owned enterprise has to be sold at auction to pay the death tax to the IRS.

Mitt Romney was right when he told a gathering in Van Meter, Iowa earlier this month that "we ought to kill the death tax. You paid for that farm once. You shouldn't have to pay for it again."

October 29, 2012 in Tax | Permalink | Comments (1) | TrackBack (0)

Phillips: The Globalization of Tax Expenditure Reporting

Lisa Philipps (York University, Osgoode Hall Law School), The Globalization of Tax Expenditure Reporting: Transplanting Transparency in India and the Global South, in Tax Law and Development (Miranda Stewart (Melbourne) & Yariv Brauner (Florida), eds., Edward Elgar Publishing Apr. 2013):

This paper traces the rise of tax expenditure reporting in countries of the Global South, with a particular focus on India. It investigates why and how policy makers in some low and middle income countries are now moving to adopt a budgeting practice that originated in wealthy Western nations in the 1970s. I discuss the potential advantages of this trend, but also argue that there is a need for its champions to face up to some challenges and potential disadvantages of transplanting this form of fiscal transparency into different national contexts. These include methodological and political challenges that are well known to Western observers but are seldom fully acknowledged in the literature advocating adoption of tax expenditure reporting by developing countries. In addition, the chapter questions whether generic prescriptions are sufficiently attuned to local political, economic and institutional circumstances that may diminish the value of OECD-style tax expenditure reporting to receiving countries.

October 29, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Crawford: A Blueprint for Blogger Involvement in Academic Legal Symposia

Bridget J. Crawford (Pace), A Blueprint for Blogger Involvement in Academic Legal Symposia, 2012 Mich. St. L. Rev. ___:

This essay reflects on my experience as the “featured blogger” at the 2012 Michigan State Law Review Symposium on Gender and the Legal Profession’s Pipeline to Power and maps out possible models for future blogger involvement in other academic legal symposia. Successful blogger involvement in live academic events requires contributors who will write under pressure and organizers who will cede control over the way the conference is interpreted and discussed by others. My involvement was an experiment at the intersection of scholarly dialogue, legal education and cyberspace. Blog-based conversations continued after the actual symposium and provided an alternate venue for perspectives that were not present at the live event. Some attorneys-to-be were reluctant to engage in live conversations about gender and power, and anonymous blog commentators labeled women who talk about discrimination as "whiners." While these silent or anonymous commentators suggest that issues of gender in the legal profession are not serious concerns for some, they indicate how difficult it is to have frank and open discussions about gender inequality.

October 29, 2012 in Legal Education, Scholarship | Permalink | Comments (0) | TrackBack (0)

Sullivan: The Employer Healthcare Exclusion's Role in Tax Reform

Tax Analysts Martin A. Sullivan (Tax Analysts), The Employer Healthcare Exclusion's Role in Tax Reform, 137 Tax Notes 462 (Oct. 29, 2012):

Martin A. Sullivan discusses how the exclusion for employer-provided health insurance might be affected by proposals for tax reform.


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

October 29, 2012 in Scholarship, Tax, Tax Analysts | Permalink | Comments (2) | TrackBack (0)

Unexpected College Football Victories Increase Donations, Applications, and SAT Scores

Michael L. Anderson (UC-Berkeley), The Benefits of College Athletic Success: An Application of the Propensity Score Design with Instrumental Variables:

[U]nexpected regular season football victories by NCAA Division I-A schools increase alumni athletic donations by $134,000. These victories also increase applications by 1%, and they improve a college's 25th percentile SAT score by 1.8 points.

Anderson uses data on bookmaker spreads to estimate the probability of winning each football game, and thus to identify unexpected success. He then estimates the effect of unexpected success on donations and applications. He suggests that his observed effects likely operate through one of two channels. First, a team that plays well may be more enjoyable to watch, and if alumni and prospective students spend more time watching a college's team, they may feel more connected to the school. Second, fans and alumni may enjoy winning itself.

Anderson notes that a simultaneous investment of $1 million in every one of these teams probably would generate smaller effects on donations and applications than the surprise victories he studies, because team won/loss records are a zero sum game and improving the level of overall play would not create any more wins for a given team.

About 8% of the teams in Anderson's sample improve their season wins by five games over a one-year period. Improvements of that magnitude increase alumni athletic donations by $682,000 (28%), applications by 677 (5%), and 25th percentile SAT scores by 9 points (1%).

Here is the abstract:

Continue reading

October 29, 2012 in Legal Education | Permalink | Comments (0) | TrackBack (0)

Johnson: Romney Tax Plan Doesn’t Add Up, Helps Wealthy Too Much

Austin American-Stateman op-ed:  Romney Tax Plan Doesn’t Add Up, Helps Wealthy Too Much, by Calvin H. Johnson (Texas):

Mitt Romney has aggressively promised large tax cuts for the richest taxpayers. President Barack Obama opposes them. Romney has simultaneously promised not to increase the deficit or increase middle class tax, but he has not specified what tax loopholes and tax subsidies he would attack to fund his plan.

There are not enough tax subsidies to keep all of Romney’s promises. Romney, moreover, also defends some important and wasteful loopholes. ...

Our current tax system resembles a sponge with lots of holes, but not very much fiber left. Over the years, brilliant tax planners, indifferent IRS rules, and members of Congress who are trying to represent us have created the loopholes. There seems to be a great rule that empires fall because their taxes inevitably fall apart. Aggressive tax reform that goes after the tax loopholes in the federal tax system would do the country good. Romney gives at least lip service to ending loopholes and tax subsidies, but then to actually do it, we are going to have to get specific.

It does less harm to the sum of human happiness to take tax from the rich instead of the poor. The Little Match Girl had only her matches to keep her alive. Tax her and she is dead. Uncle Scrooge McDuck took his income in coins that were added to swimming pools of gold coins in various vaults. The coins were never very good swimming pools, so loss of one would not be missed much. If we need a dollar to pay for the Marines or close the deficit, it is better to take it from Uncle Scrooge. That will do less harm.

October 29, 2012 in Political News, Tax | Permalink | Comments (3) | TrackBack (0)

State Taxes, Tax Exemptions and Elderly Migration

Ali Sina Önder (Uppsala University) & Herwig J. Schlunk (Vanderbilt), State Taxes, Tax Exemptions and What They Reveal About Elderly Migration:

We use the U.S. elderly migration data for 1995-2000 to test how taxes and specific tax exemptions affect migration decisions of the elderly population. We show that the elderly prefer to migrate to states with low inheritance and estate tax, high property tax, low price level, low amount of Federal revenue transfers, high level of local amenities, and high temperatures. In addition, exemption of prescription drugs from sales tax and the existence of pension exemptions affect elderly in-migration positively and significantly.

October 29, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Sunday, October 28, 2012

TaxProf Blog Weekend Roundup

College Football Season Ticket Tax Break Costs $1 Billion/Year

NCAA LogoBloomberg:  Football-Ticket Tax Break Helps Colleges Get Millions:

Theodore L. Jones has held season tickets on the 43-yard line at Tiger Stadium, home of the perennial football powerhouse Louisiana State University, for almost 20 years. Because of the Baton Rouge lawyer’s lobbying in Congress in 1986, he and thousands of other fans get a tax break on donations they make as a condition for buying seats. The deduction Jones helped craft is now costing U.S. taxpayers more than $100 million a year in revenue that the Treasury can’t collect, based on data compiled by Bloomberg.

It is the sort of provision that Mitt Romney and congressional Republicans say they will target if they win this November’s elections. There are hundreds of write-offs in the tax code that lawmakers of both parties say could be restricted to help lower the deficit. ...

{T]he college seat-donation tax break may show how hard it would be to simplify the tax system. In this case, hundreds of universities -- many of them large, state- supported institutions -- and thousands of voters benefit from the provision. It is one of hundreds of exemptions around which entrenched interests have organized their own economies and which they would probably fight to retain.

No government agency has totaled the cost to taxpayers of the deduction for donations linked to college sports tickets. Neither has the 75-year-old Tax Foundation, a nonpartisan Washington research group.

Some U.S. colleges with the most popular teams in football, basketball and hockey take advantage of the provision to market higher prices to season-ticket buyers. They set the face value, then demand additional hundreds or thousands of dollars in what are designated contributions as a condition of sale. The pitch is that under U.S. law, the fans can write off 80 percent of the mandatory donations when they itemize deductions. Other schools don’t set specific donation levels. Instead, they award seat locations using point systems in which giving may be one element.

To obtain a sampling of the data, Bloomberg made public- records requests to the 54 state-sponsored universities in the six largest football conferences. ... The 34 that reported seat donations said they received $467.2 million in such contributions for the fiscal year ended June 30, 2011. Ohio State University collected the most, with $38.7 million. ... For those 34 schools, that means taxpayers could deduct as much as $373.7 million, or 80% of the total of donations. Based on a 28% tax rate ... that would reduce revenue to the Treasury by $104.6 million. ...

The total of lost federal tax receipts may be some multiple of that amount, because more than 1,000 university sports departments are eligible to demand such deductible gifts with ticket sales. Based on the Bloomberg sampling, it wouldn’t be unreasonable to estimate that giving related to season tickets may total $1 billion a year,

October 28, 2012 in Tax | Permalink | Comments (3) | TrackBack (0)

WSJ: When Severance Pay Is Subject to Payroll Tax

Wall Street Journal Tax Report:  When Severance Pay Is Subject to Payroll Tax, by Laura Saunders:

Do laid-off workers and their former employers owe Social Security and Medicare taxes on severance pay?

It is a huge question for taxpayers and companies, and two federal appeals courts disagree about the answer.

Here is what is at stake: Ordinarily employees and employers each owe a flat Social Security tax of 6.2% up to a cap (currently $110,100), plus Medicare tax of 1.45% (unlimited) on wages, for a combined rate as high as 15.3%. Together these are known as FICA, or payroll, taxes. For an executive who was laid off in early 2009 and received $100,000 of severance, for example, the total tax in question could come to about $15,000, split equally between the former worker and his firm.

In September, the Sixth Circuit, in United States v. Quality Stores, Inc., granted a bankrupt retailer a refund for FICA taxes paid on severance. In 2008, however, the Federal Circuit, in CSX Corp. v. United States, ruled that the railroad owed FICA taxes on severance payments it made to laid-off workers.

Experts say the issue could wind up before the U.S. Supreme Court unless the Sixth Circuit grants a rehearing of Quality Stores, requested by the U.S., and then reverses its September decision. The Sixth Circuit judges haven't ruled on the rehearing petition, which was filed earlier this month. The legal issue before the courts turns on whether severance pay (known as "supplemental unemployment benefits") is subject to these taxes. The answer involves legal intricacies, but independent tax analyst Robert Willens finds the arguments in Quality Stores, which sided with taxpayers, persuasive.

October 28, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

Top 5 Tax Paper Downloads

SSRNThere is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with a new papr debuting on the list at #5:

1.  [258 Downloads]  Time for Permanent Estate Tax Reform, by Jeffrey A. Cooper (Quinnipiac)
2.  [216 Downloads]  James Couzens, Andrew Mellon, the 'Greatest Tax Suit in the History of the World,' and Creation of the Joint Committee on Taxation and Its Staff, by George K. Yin (Virginia)
3.  [208 Downloads]  Wall Street Rules Applied to REMIC Classification, by Bradley T. Borden (Brooklyn) & David J. Reiss (Brooklyn)

4.  [175 Downloads]  Incentives for Tax Planning and Avoidance: Evidence from the Field, by John R. Graham (Duke University, Fuqua School of Business), Michelle Hanlon (MIT, Sloan School of Management), Terry J. Shevlin (UC-Irvine) & Nemit Shroff (MIT, Sloan School of Management)

5.  [147 Downloads]  Taxation and Expropriation -- The Destruction of the Yukos Oil Empire, by Paul B. Stephan III (Virginia)

October 28, 2012 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0) | TrackBack (0)

CBPP: The Tension Between Reducing Tax Rates and Reducing Deficits

CBPPCenter on Budget and Policy Priorities:  The Tension Between Reducing Tax Rates and Reducing Deficits:

Over the past few months, a number of analyses have highlighted the difficulty of cutting income tax rates deeply, producing a significant revenue contribution to deficit reduction (as part of a larger deficit-reduction package), and maintaining the progressivity of the tax code. [Joint Committee on Taxation; Committee for a Responsible Federal Budget]   ...

As policymakers assess the import of these analyses, we encourage them to be sure to include one important ingredient:  a healthy dose of political reality.  A finding that it is technically possible to achieve sufficient tax-expenditure savings to pay for sizeable reductions in tax rates is not the same thing as such a course being politically viable.  Policymakers should avoid committing to a specific, lower top income tax rate until they know what measures to shrink tax expenditures Congress can actually pass and how much savings those measures will produce. Otherwise, the most critical goal of tax reform at this time — producing a significant contribution to deficit reduction (while maintaining or improving the progressivity of the tax code) — will likely be lost.

October 28, 2012 in Tax, Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

Saturday, October 27, 2012

IRS = Income Redistribution Service

Treasury - IRSReal Clear Politics:  IRS: The Small Business Bully:

President Barack Obama and Governor Mitt Romney continue to tussle over tax rates and deductions. Ignored, however, have been questions about tax collection and enforcement — tools presidents use to achieve their economic policy goals. Hit a wall ramming your tax hike or cut through Congress, simply increase or decrease tax enforcement and audits.

Under the Obama Administration, the IRS has placed small and medium-size businesses — the engines of job creation — in its auditing crosshairs.

According to IRS statistics, from 2009 to 2011, the coverage rate (number of audits as a percentage of total returns filed) for corporations with assets between $10 million and $50 million has increased 32%. The coverage rate for corporations with assets between $50 million and $100 million has increased at the same rate. Some businesspeople file individual returns, and those with incomes higher than $1 million have experience a 94% increase in their coverage rate, and a 29% increase in the actual number of exams since 2009. Those with incomes $200,000 and higher have seen a 36% increase in their coverage rate.

So, has ratcheting up audits on small and medium-size businesses produced more revenue bang for the IRS’s buck? Hardly.

Using 2011 IRS data, the Transactional Records Access Clearinghouse (TRAC) at Syracuse University found that audits of a company with assets between $10 and $50 million yielded $702 in recommended additional taxes per hour. For large corporations with assets of $250 million or more, the recommended additional taxes are $9,173 per hour. Yet while the coverage rates of companies with assets between $10 to $50 million are up 32%, rates for companies with assets of $250 million or higher are up just 7.4%.

In short, for every hour the IRS spends auditing a small or medium business, it would have recouped $8,471 more dollars auditing a large corporation. Nevertheless, the IRS continues to aggressively increase audits on small and medium companies over their larger counterparts. ...

Tax collections and enforcement can be just as redistributive as tax rates. As the numbers show, the IRS is increasingly placing job creators under the auditing hatchet while shirking oversight of the billions in new tax credits flowing to those claiming low-income status.

Put simply, the Internal Revenue Service is morphing into the Internal Redistribution Service.

October 27, 2012 in IRS News, Tax | Permalink | Comments (6) | TrackBack (0)

NY Times: Who Really Benefits From the Mortgage Interest Deduction

New York Times:  Who Really Benefits From Interest Deductions:

Real estate and building industry groups have loudly condemned proposals by both presidential campaigns to shrink the mortgage interest deduction. Central to their arguments is the long-hallowed deduction’s value to the middle class. But a closer look at who benefits suggests that this perception, though prevalent, is not accurate.

To begin with, most taxpayers do not benefit from the deduction at all. This is because they do not itemize deductions on their federal income tax returns. According to Joseph Rosenberg, a research associate at the Urban-Brookings Tax Policy Center, only about 30% of taxpayers itemize, rather than take the standard deduction. And the majority of these itemizers are upper-middle and upper-income households.

Within that privileged category, the people who tend to derive the greatest dollar benefit from the mortgage interest deduction are households earning $100,000 to $500,000 a year. “About two-thirds of the total benefit go to that group in the 80th through the 99th income percentiles,” Mr. Rosenberg said. ...

That the deduction has been politically sacrosanct for so long reflects just how much it is prized by the itemizers of the moment, as well as those who are in the business of selling homes.

(Hat Tip: Mike Talbert.)

October 27, 2012 in Tax | Permalink | Comments (6) | TrackBack (0)

Friday, October 26, 2012

IRS Pays $38 Million in Whistleblower Case

Wall Street Journal:  IRS Pays $38 Million in Whistleblower Case, by Laura Saunders:

The IRS has awarded an anonymous whistleblower $38 million for information leading to the recovery of between $127 million and $254 million in corporate taxes, according to the whistleblower's attorney.

The payment is believed to be the second-largest whistleblower award under a program created by Congress that took effect in 2007. The program awards between 15% and 30% of the taxes recovered by the IRS. In August, whistleblower Bradley Birkenfeld received an award of $104 million in connection with information he provided the IRS concerning offshore tax evasion promoted by Swiss banking giant UBS.

The whistleblower's attorney, Scott Knott of Ferraro Law Firm in Washington, declined to name the whistleblower or the firm involved, although he said the corporation is among the top 500 public firms in the country. He released a redacted copy of the IRS's award notice verifying that the whistleblower received $38,037,899.

October 26, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

More on the Thomas Jefferson Law School Lawsuit

TJFollowing up on Tuesday's post, Former Thomas Jefferson Law School Administrator Admits to Cooking Placement Stats:

In an interview with the ABA Journal, Thomas Jefferson School of Law dean Rudy Hasl called the allegations a "crock of crap."

He said the school never instructed any employee to falsify graduate employment data. He also said the data the school submitted to the ABA was accurate.

Hasl refused to discuss the circumstances surrounding Grant's departure from the school, citing the confidentiality of personnel records. But he said the matter will be fully addressed at a scheduled hearing in the case next month in court.


October 26, 2012 in Legal Education | Permalink | Comments (2) | TrackBack (0)

Villanueva Presents International Double Taxation in Spain Today at Florida

PhotoAntonio Vázquez del Rey Villanueva (University of Navarra (Spain)) presents International Double Taxation in Spain today at Florida's Tax Policy Colloquium hosted by Yariv Brauner:

In order to avoid international double taxation on business income, the Spanish Corporate Tax basically combines the tax credit (and eventually the indirect credit) with the exemption of foreign active business income (derived through permanent establishments abroad or repatriated as dividends or capital gains). The exemption was originally intended not just to avoid international double taxation but with the aim of fostering the internationalization of resident companies, in order to promote their competitive position in a global market.

Some of the most sensitive areas in which international double taxation may arise relates to the source and nature of income and the allocation of expenses. Apparently, the non-existence of source rules for the purposes of the tax credit leads to a situation in which foreign income taxes are always credited. No evidences can be found in practice that the tax credit is rejected when the State of Source applies his own domestic legislation. To the contrary, when a tax treaty applies, the nature and the source of income play a key role and eventually the tax credit is denied. On the other hand, the domestic legislation does not rule the allocation of expenses to foreign income. This is a common issue to both the tax credit and the exemption. In practice those economically related expenses are allocated to the foreign income, in order to protect the primary right to tax domestic income and the residual right to tax foreign income.

Another sensitive topic makes reference to the foreign taxes which can be credited (basically any personal and direct tax on income qualifies). The exemption relies on a subject-to-tax clause which apparently on a similar requirement. However, caution must be exercised when bringing any conclusions out of the more detailed subject-to-tax clause.

The ordinary tax credit is subject to a per-country limitation (except for business profits obtained through permanent establishment which are subjected to a “per PE limitation”) which provides with a greater simplicity to the cost of a limited crosscrediting. From CEN, the result is inferior as the taxpayer may still find an incentive to invest abroad (rather than domestically). On the other hand, in order to protect the domestic tax base a recapture rule applies (also when the exemption) when any losses from foreign permanent establishments have been previously offset. Traditionally, tax credit has been regarded as a more complex solution; however, the current implementation of the exemption also involves a great complexity which reflects on tax compliance. 

October 26, 2012 in Colloquia, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

WSJ: Liberals Confuse CEOs' Pro-Growth Plea With a Tax-Rate Hike

Wall Street Journal editorial:  CEOs to the Tax Rescue? Liberals Confuse a Pro-Growth Plea With a Tax-Rate Hike:

Two words: game, change. On Thursday a 100-strong group of major business leaders did a Warren Buffett and endorsed a big tax hike, even if it means they'll have to pay more themselves. The support of this CEO lobby could break the Republican dead-enders who oppose all taxes and finally clear the way for a glorious bargain of tax increases and spending cuts to reduce the deficit.

If you've seen this news story, don't worry. It's all a fantasy, albeit one that appeals to certain political types, who are reading their own priorities into the latest CEO petition on debt and taxes. The reality is that the chief executives who this week signed on to a "core set of principles" on budget reform are more than anything else scorching President Obama's lack of leadership. ...

The CEOs favor a framework that would "stabilize the debt as a share of the economy, and put it on a downward path." ... The CEOs also want to "reform Medicare and Medicaid" and do more to control national health spending. ... Only then—as a condition of structural entitlement reform, including Social Security—do the CEOs back "comprehensive and pro-growth tax reform, which broadens the base, lowers the rates, raises revenues and reduces the deficit." Note that reference to tax reform and lower rates, not the standard Beltway trade of certain tax increases for the promise of spending cuts that never happen.

The folks who are treating this as an extraordinary political breakthrough have apparently come down with a case of Romnesia, to borrow the President's coinage: Mitt Romney has been running on exactly such a tax reform for nearly a year, using exactly those principles....

What the CEOs we know really want is faster economic growth, the policies to promote it, and a Washington political class that can pass those policies. The politicos claiming that this rather anodyne CEO debt proclamation will make it easier for Mr. Obama to "raise taxes" are the same ones who merely want him to raise taxes.

October 26, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

Madison: Legal Education and the End of the Beginning

SteelMichael Madison (Pittsburgh), Legal Education and the End of the Beginning:

Hastings Dean Frank Wu ... has compared legal education to 1970s Detroit.  I’ve written of a different and to my mind, more apt comparison:  Legal education is the 20th century steel industry – massively successful up until the very end, and then, in a moment, it wasn’t. Not successful, and not much of an industry. American steel producers (including producers in Pittsburgh) have rebounded, and they still make lots of great steel – but the big integrated producers don’t make the huge quantities of the structural steel that made them rich and powerful, and in all that they produce today, they employ only a tiny fraction of the US workforce that they once did. In Pittsburgh, where I live and which has become something of a poster-child for the chic revival of post-industrial America, the scars of the dislocation, disruption, and loss wrought by the crash of steel are still visible, and full of meaning and economic impact, 30 years on.   

The collapse of American steel may or may not have been avoidable, at least at the very end. But everyone at the top of the pyramid, on both management and labor sides, saw the end coming: the over-capacity, the flawed economic model, the changing demand.  They saw it decades ahead of time.  Everyone diagnosed the problems as the responsibility of other players. In macro and micro ways there were plenty of opportunities for management and labor collectively to take a balanced view of their futures and to avoid walking over the precipice together. Yet walk over the precipice together is what, in the end, happened. The parallel to legal education is imprecise. At the very least, this is not law schools’ 1981, the year that Steel's struggles really started to hit home in earnest. 

Is it?

October 26, 2012 | Permalink | Comments (1) | TrackBack (0)

Tax Foundation: President Obama's Tax Policy Would Reduce Economic Growth and Incomes

Tax Foundation logoThe Tax Foundation released a report yesterday arguing that President Obama’s proposal to raise taxes on individuals earning more than $200,000 would slow economic growth and reduce future incomes:

The amount of income that would be lost over the next ten years because of higher taxes varies by state, ranging from $2 billion in Vermont to as much as $241 billion in California.

In dollar terms, the states most affected are large, high-income states. California stands to lose $241 billion over ten years as a result of the president’s tax policies, followed by New York at $186 billion, Texas at $131 billion, Florida at $104 billion, and Illinois at $74 billion.

As a percent of income, Wyoming is most affected, losing 1.82% of income in 2013, followed by Connecticut at 1.76%, New York at 1.61%, Delaware at 1.49%, and Massachusetts at 1.40%. In all, thirteen states are set to lose at least 1% of income as a result of these tax increases, and every state loses at least 0.5% of income.

How States Would be Affected by Obama’s Proposed Tax Increases on High-Income Earners.

October 26, 2012 in Tax, Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

Law Prof at Top 50 School: It's Time to Stop Hiring Faculty

Interesting email sent by a faculty member at a Top 50 law school to his/her colleagues:

Forgive me for writing a very long email about an unhappy topic, but I think the situation justifies it. I also apologize for what might appear to be an untimely message, but I have only recently become firmly convinced of my position which is — due to the precarious, unprecedented state of legal education in the U.S. — we should refrain from hiring permanent faculty unless and until it becomes more clear that [we] will not in the future need to substantially reduce [class] size or cut tuition.

It is certainly bizarre for a business to rush to buy a long-lived asset (such as a tenured or tenure-track faculty member) immediately after its customer base has precipitously contracted. Applications to law school were down 15% last year and, making matters worse, the biggest declines were among the precise students we hope to matriculate (e.g., 18.5% declines among LSATs between 160 and 169). Furthermore, I think it’s safe to say that the most recent ... grads (e.g., classes of 2010, 2011, and 2012) and the next graduating class have faced or will face the worst employment prospects of any graduating class in the modern history of the law school and also have paid or will pay by far the most money (even in inflation-adjusted dollars) of any graduating class for those results. I personally don’t think it’s a sustainable model when your customers pay more and more for worse and worse results.

Many of our peer schools are reconsidering their class sizes in reaction to the apocalyptic events of the last few years by substantially decreasing their first year classes (whether this is permanent or not is unclear). ... [A]bout half of the schools ranked between 14 and 46 in the USNews cut their class by roughly 10% or more last year, as shown by this chart.

The important question for us is whether we will, in the future, feel it necessary to at least consider substantially dropping our class size and/or tuition price to account for both the drop in acceptable applicants and also the reduction of satisfactory employment outcomes for our graduates (satisfactory after taking into account the cost of the education). If we do feel it necessary to drop class size or cut tuition, having fewer tenured and tenure-track faculty will make the process less painful. We would all presumably have to do more (perhaps for less pay) to pick up the slack, but that is something that nearly everyone else in the legal community (practitioners and students) have been doing for the past several years.

In the face of substantial uncertainty, there is a significant option value to waiting. Waiting would mean patching the roof rather than replacing it. Patching the roof in this case might mean hiring visitors or paying people to temporarily teach overloads. Or having everyone teach more until it becomes more clear that the storm has passed us by; we have asked our students to pay more and to suffer bleaker employment prospects (i.e., to do more with less), so it does not strike me as unreasonable to likewise ask the faculty to do more with less. (For what it’s worth, I will be the first volunteer to teach more.) The benefit of the “patch the roof” approach is that, should we decide that we need to move to a smaller house, it will be easier and less painful to do so.

I recognize that there may be costs to patching the roof. Students and faculty could suffer by having less permanent faculty (though this could be mitigated somewhat by hiring visitors), and we could miss out on attractive candidates that end up going elsewhere. However, in my view, these costs are much smaller than the benefit of waiting. ...

In short, I am proposing that [we] behave like any business would in light of these facts and what our competitors are doing. I believe that this is the time to rent, not to buy.

October 26, 2012 in Legal Education | Permalink | Comments (6) | TrackBack (0)

60th Annual Montana Tax Institute

60thTax Institute1The 60th Annual Montana Tax Institute kicks off today. Tax Profs with speaking roles include:

  • Sam Donaldson (Georgia State), Annual Income Tax Update
  • Elaine Gagliardi (Montana), Annual Wealth Transfer Tax Update
  • Kristen Juras (Montana) & Julie Sirrs (Montana), Property Taxation Issues Arising in Montana
  • Martin J. McMahon (Florida) & Daniel L. Simmons (UC-Davis), When Subchapter S Meets Subchapter C
  • James R. Repetti (Boston College), Capital Shifts in Partnerships
  • Dennis Ventry (UC-Davis), Rendering Tax Advice in the Face of Uncertainty

October 26, 2012 in Scholarship, Tax, Tax Conferences | Permalink | Comments (0) | TrackBack (0)

Washington U. Hosts Symposium Today on The Law School in the New Legal Environment

Wash U LogoWashington University hosts a symposium today on The Law School in the New Legal Environment:

Welcome and Introduction:  Kent D. Syverud (Dean, Washington University)

Plenary: Change and the New Legal Environment:

  • Andrew F. Puzder (CEO, CKE Restaurants), Managing Change
  • Lauren Robel (President, AALS; Interim Provost, Indiana-Bloomington), Change and Academic Mission
  • Brian Tamanaha (Washington University), Failing Law Schools

Affordability and Access to Legal Education in the New Legal Environment:

  • Chris Chapman (President & CEO, Access Group)
  • Deborah Jones Merritt (Ohio State)
  • Kyle McEntee (Executive Director, Law School Transparency)
  • Jerry Organ (University of St. Thomas)
  • Steve Willborn (Chair, Board of Trustees, Law School Admission Council; Former Dean, Nebraska)
The Future of Faculty in the New Legal Environment:
  • Michael Fitts (Dean, Pennsylvania)
  • Cynthia Nance (Arkansas)
  • Michael A. Olivas (Houston)
  • Ian Weinstein (Past President, Clinical Legal Education Association; Associate Dean, Fordham)

Preparation for Practice and Placement in the New Legal Environment:

  • Mary Beth Beazley (Ohio State)
  • Christine Durham (Chief Justice, Utah Supreme Court)
  • William D. Henderson (Indiana-Bloomington)
  • John F. O’Brien (Dean, New England)
  • Roy Stuckey (South Carolina)

How Will Online Education Change Law Schools in the New Legal Environment:

  • Chip Paucek (CEO, 2tor Inc.)
  • Barry Currier (Interim Consultant on Legal Education, ABA)
  • Leo P. Martinez (UC-Hastings)

Discussion of the Whole: Five Highest Priorities for Change:

  • Daniel Bernstine (President, Law School Admission Council)
  • Ruth McGregor (Retired Chief Justice, Arizona Supreme Court)

October 26, 2012 in Legal Education, Tax Conferences | Permalink | Comments (0) | TrackBack (0)

Florida Hosts 3rd Annual Ellen Bellet Gelberg Tax Policy Lecture

Florida Logo (GIF)The University Florida hosts the Third Annual Ellen Bellet Gelberg Tax Policy Lecture today on the nation’s economic situation with:

  • Lindy Paull (PricewaterhouseCoopers) (moderator) 
  • Thomas Barthold (Chief of Staff, Joint Committee on Taxation)
  • Lily Batchelder (Chief Tax Counsel, Senate Finance Committee)
  • Mark Prater (Minority Chief Tax Counsel, Senate Finance Committee)

October 26, 2012 in Tax, Tax Conferences | Permalink | Comments (0) | TrackBack (0)

Tulane Hosts Conference Today on A Fiscal Trilemma?

Tulane University LogoThe Murphy Institute of Tulane University hosts a conference today on A Fiscal Trilemma?:

  • Leonard E. Burman (Syracuse University), Pathways to Tax Reform Revisited
  • John W. Diamond & George R. Zodrow (both of Rice University), Promoting Growth, Maintaining Progressivity, and Dealing with the Debt: Lessons from CGE Models and Simulations of a Debt‐Reducing VAT
  • William G. Gale & Samuel Brown (both of The Brookings Institution), Tax Reform for Growth, Equity, and Revenue
  • James R. Hines, Jr. (University of Michigan), The Redistributive Potential of Wealth Transfer Taxes
  • Rasmus Højbjerg Jacobsen, Søren Bo Nielsen & Anders Sørensen (all of Copenhagen Business School), The Fiscal Trilemma in a Danish Perspective
  • Diane Lim Rogers (The Concord Coalition), Leaving the Bush Tax Cuts for Better Tax Policy
  • Laurence Seidman (University of Delaware), Overcoming the Fiscal Trilemma with Two Progressive Consumption Tax Supplements
  • Alan D. Viard (The American Enterprise Institute), Addressing the Fiscal Trilemma Through Progressive Consumption Taxation: The Choice of Tax Design

October 26, 2012 in Tax, Tax Conferences | Permalink | Comments (0) | TrackBack (0)

Thursday, October 25, 2012

Gossett: The Federal Adoption Tax Credit and International Adoption

DeLeith Duke Gossett (Texas Tech), If Charity Begins at Home, Why Do We Go Searching Abroad? A Call to Sunset the Portion of the Federal Adoption Tax Credit that Subsidizes International Adoptions, 17 Lewis & Clark L. Rev. ___ (2013):

Unlike the media frenzy that surrounded Angelina Jolie’s and Madonna’s international adoptions, noted director Steven Spielberg’s adoption of two African American children from the Los Angeles foster care system received very little fanfare. Spielberg went on to establish the Children’s Action Network, a non-profit organization dedicated to finding permanent homes for the thousands of children stuck “in the system” of foster care. He documented their stories and their hopes of someday being adopted. For many, however, adoption is a dream yet to be realized.

Currently, nearly half a million children reside in United States foster care, some “aging out” without ever having been adopted. Beginning in the 1980s and carrying through the 1990s, Congress passed a series of legislative measures aimed at helping those children in the system. As incentive for placing children in permanent homes, and as part of the Adoption Promotion and Stability Act of 1996, a tax credit was made available for those who adopted children. Since that time, the federal adoption tax credit has risen to as high as $13,360 per child, some years as refundable and other years as non-refundable.

On June 28, 2012, in a controversial 5-4 opinion, the United States Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act healthcare legislation championed by President Obama. A little known part of that legislation was the extension, expansion, and enhancement of the adoption tax credit provided by the federal government. Even though the act withstood judicial scrutiny, the high numbers are scheduled to sunset in December 2012, and revert to levels of $6,000. Petitioners are already lobbying Congress to renew it at the increased level for 2013. In fact, legislation was introduced earlier this year that would expand the credit and make it permanently refundable.

In recent years, international adoption has become the new social trend, fueled by celebrity and evangelical circles alike (although arguably for different reasons), even though a large number of children remain in the foster care system. Children from other countries are now being imported to form the new American families, and those who adopt internationally, whether they receive $13,360, or even $6,000, are receiving the same tax benefits as those who adopt domestically. And while this may add to the diversity of our culture, and provide those adopting with a sense of fulfilling a higher purpose, the very ones who were the intended beneficiaries of the legislation, those “lost in the system,” remain there and are not being helped as the statute originally intended. Because the tax credit should be used to reclaim children from the foster care system — not to subsidize international adoptions — it is time to let the international portion of the tax credit sunset and focus taxpayer resources on those whom the tax credit originally sought to help.

October 25, 2012 in Scholarship, Tax | Permalink | Comments (3) | TrackBack (0)

Jury Splits in Conservative Faculty Candidate's Hiring Bias Suit Against Iowa Law School

Wagner 2A federal jury rejected Teresa Wagner's First Amendment claim that the University of Iowa College of Law denied her a faculty position due to her conservative politics, but deadlocked over her Equal Protection claim that she was passed over in favor of less qualified candidates. The U.S. Magistrate Judge declared a mistrial on the 14th Amendment claim.

(Hat Tip: Dorothy Brown.)  Prior TaxProf Blog coverage:

October 25, 2012 in Legal Education | Permalink | Comments (7) | TrackBack (0)

Fleischer: NYU Signals Shift Toward Law School Specialization

NY Times DealBookNew York Times DealBook:  The Shift Toward Law School Specialization, by Victor Fleischer (Colorado):

The twilight of the generalist law degree is here. ... New York University School of Law is retrofitting its third-year curriculum to allow for increased specialization. Options include advanced study in areas like tax or corporate law, working in Washington at a federal agency or foreign study in Buenos Aires, Paris or Shanghai. While the study-abroad aspect of the program has received much of the attention, the heart of the proposal is an important shift toward specialization. ...

In my view, law schools should play matchmaker, guiding students toward specialties that are likely to endure. Big firm attorneys in some practice areas will continue to have a comparative advantage over low-cost attorneys, in-house lawyers and other professionals. One area is bet-the-company litigation, where high stakes justify high fees. Another is mergers and acquisitions and securities work, where, in addition to negotiating and drafting documents, lawyers usually quarterback the deal to closing. A third area is any practice that demands highly specialized legal and regulatory knowledge, like bankruptcy, tax and financial regulation. The knowledge required is intrinsically legal and cannot be easily moved offshore or outsourced to nonlawyers or contract attorneys. ...

Tax can serve as a model for this shift toward specialization. The tax L.L.M., or Master of Law degree, is perhaps the one example of specialized legal education that has already proved successful for both schools and students, at least at the top programs. A tax L.L.M. builds on foundational law school training (unlike a master’s degree in tax accounting), and it signals a breadth and depth of tax knowledge that cannot be readily provided by low-cost competitors. Even as the number of large law firm jobs has declined, tax L.L.M.’s have the option of competing for good jobs in accounting firms. Several schools now offer three-year J.D.-tax L.L.M. programs.

Could the same approach work in other areas of law that demand specialized legal expertise, like securities law, banking law or patent law? The critical question is whether there is sufficient market demand to supply an adequate number of jobs with six-figure salaries.

October 25, 2012 in Legal Education, Tax | Permalink | Comments (2) | TrackBack (0)