Paul L. Caron

Tuesday, April 30, 2013

NLJ: ABA Debates Elimination of Tenure Requirement for Law Faculty

ABA Logo 2National Law Journal:  Is Law Faculty Tenure In or Out? ABA Can't Decide, by Karen Sloan:

The committee updating the ABA's law school accreditation standards hopes to wrap up its initial review by the end of 2013, but the group remains nowhere near a consensus regarding job protections for law faculty—perhaps the most controversial item on its agenda. The 14-member Standards Review Committee spent much of its most recent two-day meeting in Washington weighing the merits of three job protection and academic freedom proposals before opting to draft a fourth idea for future consideration.

"It was a very fulsome discussion," said committee chairman Jeffrey Lewis, a professor at Saint Louis University School of Law. "We want to have a full plate of options in front of us."

Rather than submit just one proposed standard to the ABA's Council of Legal Education and Admission to the Bar, the committee likely will recommend one proposal but provide several alternatives so the council can decide whether it wants to maintain, increase or decrease job protections. ...

The first idea essentially would maintain the existing standard—declaring that law schools shall provide for "tenure or a comparable form of security of position for full-time faculty." Clinical faculty would have "a form of security of position reasonably similar to tenure," but not legal-writing teachers. Some clinicians and legal writing instructors have argued that the existing rules have created a caste system.

The second proposal is to move away from any tenure requirement. Schools would afford all full-time faculty some form of security of position, but each would decide what system that would be. ...

The third idea is similar to the second, in that some form of security of position would be required, although tenure would not mandated. However, schools would have to maintain the same system for all full-time faculty, including legal writing and clinical faculty.

In addition to the three existing proposals, Lewis said, the committee may consider a fourth alternative under which law schools would not be required to guarantee any security of position. He said he hopes that the committee would arrive at some sort of consensus during its next meeting in July.

Prior TaxProf Blog coverage:

April 30, 2013 in Legal Education | Permalink | Comments (1) | TrackBack (0)

Grinberg Presents Emerging Countries and the Taxation of Offshore Accounts Today at NYU

GrinbergItai Grinberg (Georgetown) presents Emerging Countries and the Taxation of Offshore Accounts at NYU today as part of its Colloquium Series on Tax Policy and Public Finance convened by Daniel Shaviro (NYU) and William Gale (Tax Policy Center; visiting at NYU):

A new international regime in which financial institutions function as cross-border tax intermediaries is emerging. The contours of that regime will be established during a narrow window of opportunity over the span of the next few years. The resulting regime will have especially important consequences for emerging countries. A uniform, multilateral automatic information exchange system would improve both these jurisdictions’ ability to tax the offshore accounts of their residents and their capacity to tax certain domestic-source income from capital.

Interestingly, multinational financial institutions’ and emerging countries’ concerns with the emerging international regime are largely aligned. As a result, they may find that they are improbable allies in the battle over taxing offshore accounts. With the G-20 as an agenda-setter and international financial law as the model, a governance structure for an automatic information exchange regime that could be useful to emerging countries’ tax administrations and lower multinational financial institutions’ compliance costs could materialize. The paper explores the necessary architecture, as well as steps emerging countries may take to help that architecture develop.

April 30, 2013 in Colloquia, Scholarship, Tax, Tax Conferences | Permalink | Comments (0) | TrackBack (0)

Dean Delivers FATCA Lecture Today at the University of Antwerp

DeanSteven Dean (Brooklyn) delivers a lecture at the University of Antwerp (Netherlands) today on FATCA’s Unanswered Questions:

Like an asteroid passing close to Earth, the threat of FATCA's implementation has caused great anxiety and much activity. Despite the existence of important questions about FATCA's implementation, it has caused even some of the most reluctant foreign governments to embrace information reporting obligations. Tracing FATCA's origins offers useful insights regarding its likely effects. Even if it ultimately "misses" as a commitment device, FATCA will have a lasting impact on global tax administration.

April 30, 2013 in Colloquia, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Opacity and Tax Avoidance

Jon N. Kerr (Columbia Business School), The Real Effects of Opacity: Evidence from Tax Avoidance:

This study provides evidence on a significant real consequence of an opaque financial reporting information environment: increased corporate tax avoidance. Using an international sample of firms, I find that firms with a more opaque information environment, as measured at both the firm and country level, exhibit higher levels of firm-specific tax avoidance. More importantly, additional tests using the adoption of International Financial Reporting Standards (IFRS) as an exogenous shock to the information environment while simultaneously controlling for tax regime changes around the date of IFRS adoption provide direct evidence on the direction of the association, namely that opacity causes tax avoidance. Similarly, the results from tests using the initial enforcement of insider trading laws provide additional support for a directional hypothesis. In support of the firm-level findings, I also find evidence in the aggregate that opacity is associated with countries collecting less corporate tax revenues as a percentage of gross domestic product. In whole, these findings suggest that tax avoidance is a significant real effect of opacity with implications for practitioners, regulators, researchers, and tax-enforcement agencies.

April 30, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Patents, Prizes, Grants, and Tax Incentives

Daniel J. Hemel (J.D. Yale 2012) & Lisa Larrimore Ouellette (J.D. Yale 2011), Beyond the Patents-Prizes Debate, 92 Tex. L. Rev. ___ (2014):

Intellectual property scholars have vigorously debated the merits of patents versus prizes for encouraging innovation, with occasional consideration of government grants. But these are not the only options. Perhaps most significantly, the patents-vs.-prizes (or patents-vs.-prizes-vs.-grants) debate has largely neglected the role of tax incentives in innovation policy, despite the tens of billions of dollars spent globally on tax breaks for R&D activities each year. How should R&D-related tax incentives figure into this debate, and what criteria are relevant for policymakers selecting among the various tools?

In this Article, we develop a new taxonomy of innovation policies that allows direct comparisons among patents, prizes, grants, and tax incentives. This taxonomy highlights the overlooked benefits of tax credits: like patents, they elicit privately held information about the expected value of R&D projects; like grants, they reduce the social-welfare costs of frictions in imperfect capital markets. Our taxonomy also sheds light on new non-efficiency dimensions of R&D policy. Grants and tax credits distribute rewards among innovators in a more egalitarian manner than patents and prizes (without necessarily sacrificing efficiency). And incentive mechanisms also differ in their distribution of costs among users: grants, tax credits, and prizes generally require all taxpayers to subsidize R&D regardless of whether they use the resulting products, whereas the patent system imposes R&D costs primarily upon the consumers who purchase patented products.

Ultimately, optimal innovation policy will depend on a range of factors, including the government’s ability to evaluate projects, innovators’ capital constraints and risk aversion, the relative deadweight loss of taxation and that of patents, administrative costs, and considerations of distributive justice. Because almost all of these factors point to more than one of the four main incentivizing mechanisms, innovation debates should not truncate the menu of policy options to only two or three of these tools.

Our analysis also highlights the tax-like characteristics of patents: a patent operates in much the same way as a sales tax levied on a narrow tax base. But unlike other taxes, the patent system’s costs are not reflected in the federal budget, making patents seem like the cheapest innovation policy option regardless of their actual cost. To neutralize this political-economy advantage, we propose that estimates of the patent system’s “shadow” sales tax on patented goods be incorporated into total tax calculations, and that the “shadow” prize to patentees be incorporated into estimates of long-run expenditures.

April 30, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Tax Prof Moves, 2013-14

VAP Hires
  • Sloan Speck (Skadden, Chicago) to NYU
Entry Level Hires
  • Pippa Browde (IRS Chief Counsel's Office, New York) to Montana
  • Andrew Hayashi (NYU Research Fellow) to Virginia
  • Orly Sulami (Haynes and Boone, Dallas) to SMU
  • Kathleen DeLaney Thomas (NYU VAP) to North Carolina

Lateral Moves

Promotions, Tenures, Chairs, and Professorships

Administrative Appointments


  • Howard Abrams (San Diego) to Harvard (2013-14)
  • Jordan Barry (San Diego) to Michigan (Fall 2013)
  • Paul Caron (Pepperdine) to San Diego (Summer 2014)
  • Cliff Fleming (BYU) to Vienna University (Oct. 2013)
  • William Foster (Washburn) to Arkansas-Fayetteville) (2013-14)
  • Victoria Haneman (La Verne) to UNLV (Fall 2013)
  • Michael Hatfield (Texas Tech) to Washington (2013-14)
  • Tracey Roberts (Louisville) to Seattle (2013-14)
  • Stephanie Willbanks (Vermont) to Richmond (Fall 2013)

For prior years' Tax Prof Moves, see:

April 30, 2013 in Legal Education, Tax, Tax Prof Moves | Permalink | Comments (0) | TrackBack (0)

Camic: Everything Is Tax

Susannah Camic (Wisconsin), Everything is Tax: Evaluating the Structural Transformation of U.S. Policymaking, 50 Harv. J. on Legis. 2013 (2013):

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.

April 30, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Johnson: Profits From Tax Evasion Under the Midco Transaction

Tax Analysts Calvin H. Johnson (Texas), Profits From Tax Evasion Under the Midco Transaction, 138 Tax Notes 1485 (Mar. 25, 2013):

In a transaction the IRS has called the midco shelter, a scoundrel evades tax on the sale of a corporation’s business assets and shares the benefit of the evasion with the sellers of the corporation’s stock and the buyers of its assets. Shareholders of a corporation with appreciated assets sell stock to the scoundrel, and the corporation sells its assets. Tax on the gain is due but the scoundrel evades tax. Asset buyers get a step-up in basis to cost without having to cover the tax on the asset sale. Stock sellers get a price greater than the net worth of assets, when tax due is considered.

The proposal would make the selling shareholders secondarily liable for the corporate tax, limited by the premium they receive in excess of the corporation’s net worth. That premium would be measured from the actual sales of corporate assets. The proposal would also make asset buyers secondarily liable for corporate tax, limited by the deemed value of the step-up in basis. The proposal would have no effect on current transferee liability law.

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

April 30, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Abreu & Greenstein: A Better Way to Understand the Definition of Income

Alice G. Abreu Florida Tax Review(Temple) & Richard K. Greenstein (Temple), It’s Not a Rule: A Better Way to Understand the Definition of Income, 13 Fla. Tax Rev. 101 (2012):

In a recent article Professor Douglas Kahn explores a particular dissonance between the positive and very broad definition of income that includes all realized accessions to wealth, and what the government can and does actually attempt to tax. [Exclusion from Income of Compensation for Services and Pooling of Labor Occurring in a Noncommercial Setting, 11 Fla. Tax Rev. 683 (2011).] He then offers two limiting principles, which he posits operate as exclusions and thus eradicate the gap. Specifically, Professor Kahn suggests that the dissonance vanishes if we understand that “the income tax operates only on commercial transactions” and, as a corollary, that “joint efforts should not be treated as exchanges of services but rather as a jointly conducted activity,” which does not produce income “[w]hen the common goal has no business connection.” Professor Kahn derives these principles by examining a series of provocative hypothetical problems and suggests that these principles explain why a number of items that would seem to come within the broad positive definition of income are not in fact subject to tax despite the absence of a statutory exclusion.

In Defining Income [11 Fla Tax Rev. 295 (2011)], an article we recently published, we argued that the desire for theoretical precision that prompts articles such as Professor Kahn’s has led to a long tradition of interpreting the definition of income as a rule. We proposed as an alternative that the definition of income be thought of as a standard — specifically, that questions about whether a particular accession to wealth constitutes income be answered by employing an all-things-considered inquiry based on the values relevant to federal income tax. Our claim was that treating income as a standard effectively addresses the puzzling gap between what the broad positive definition of income would seem to include and what is actually taxed.

The commercial/noncommercial distinction that shapes Professor Kahn’s proposed principles functions as a rule. In this Essay we propose a thought experiment: What if we were to think about the problems Professor Kahn poses from the perspective of income-as-standard? Doing so would allow us to explore the utility of such an approach concretely. We therefore consider the precise issues Professor Kahn discusses, but use an income-as-standard approach. Having contrasted the two approaches, we return to the conclusion we reached in Defining Income: standards have important virtues that make them superior to rules for resolving some fundamental questions in federal income tax law. Contemporary tax analysis often assumes that all tax formulations are rules; we believe we have shown that while many are, income is not.

April 30, 2013 in Poll, Tax | Permalink | Comments (1) | TrackBack (0)

Law Profs Are Like Dorothy and Her Red Shoes: We've Had the Power to Change Legal Education All Along

OzThe Legal Whiteboard:  Is Law School Reform Going to Come Top Down or Bottom Up?, by William Henderson (Indiana):

[W]ill an ABA taskforce, or AALS, LSAC, or some other industry group taskforce produce substantial change?  History suggests that the answer is no and that, instead, meaningful change will come from the bottom up rather than the top down.  Change will occur at the bottom from either the desire to survive or the opportunity to do something great.  Other similarly situated institutions that feel less urgency or inspiration will eventually perish.  It is just that simple

The accreditation system we have created is an anchronism.  But if we think the ABA Standards are holding back the forces of innovation in legal education, we are kidding ourselves. Any law school or law professor who wants a better way can have one -- we are all like Dorothy and her red slippers in the Wizard of Oz: we have had the power all along. ...

Reform in legal education is not a light switch.  It is mindset that affects how we spend our time and who we spend it with. ... If we want reform, well, let's work on it and actually get something done that will inspire others. Eventually it will take hold and take off, with or without changes to the ABA governing standards.

April 30, 2013 in Legal Education | Permalink | Comments (1) | TrackBack (0)

Monday, April 29, 2013

Mayer & Ganahl: Taxing Social Enterprise

Lloyd Hitoshi Mayer (Notre Dame) & Joseph R. Ganahl (J.D. 2013, Notre Dame), Taxing Social Enterprise, 66 Stan. L. Rev. ___ (2014):

The fairly strict divide in the United States between for-profit and nonprofit forms presents a quandary for many entrepreneurs who want to combine doing good with doing well. On the one hand, for-profits offer great flexibility and access to capital and so attract entrepreneurs who would like to take advantage of the ability of for-profits to scale up rapidly to meet growing demand. At the same time, however, for-profit forms also limit entrepreneurs’ ability to engage in philanthropy, due to the fiduciary duties managers owe to the equity holders. On the other hand, nonprofits offer their founders the freedom to prioritize public benefit but limit both their access to capital, in large part due to the bar on equity financing for a nonprofit, and their flexibility in addressing changing societal needs as a result of constraints in the law designed to deter nonprofits from straying into activities unrelated to their narrow primary mission. Hybrids — low-profit limited liability companies, benefit corporations, and other related forms — have been touted as the “both-and” solution to this problem by marrying the capital and innovation that results from the ability to generate a profit for investors with the public benefit goals that characterize most nonprofits.

Since the first hybrid enabling law was passed in Vermont in 2008, the number of states offering hybrid forms has grown steadily, as has the number of entrepreneurs choosing statutory hybrids as a middle road between the for-profit and the nonprofit. Plaudits for and criticism of the hybrid form have also proliferated. Proponents have lauded their ability to facilitate socially conscious enterprise. Detractors have questioned the viability of the hybrid form and have suggested that they create more fiduciary conflicts than they resolve. To date, however, there has been no serious scholarly publication addressing the appropriate tax treatment of hybrid entities even though some supporters of hybrids have asserted that these forms deserve beneficial tax treatment. In this Article, we intend to close that gap by thoroughly examining the arguments for tax preference and the likely consequences that would flow from offering such preference.

We accept the fact that hybrid forms have gained a firm foothold in the legal landscape and expect that they will increase in prominence and influence. We contend, however, that offering nonprofit-like tax benefits to hybrid entities will likely have a deleterious effect, not only on the charitable sector and the public fisc, but possibly even on hybrids themselves. The Article concludes with some proposals for possible modifications to existing tax laws that would acknowledge hybrids’ virtues while not exacerbating their potential weaknesses.

April 29, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

U.S. Is #1 in Green Taxes

KPMG:  U.S. Ranks First In 'KPMG Green Tax Index,' Tops Countries Using Tax Code To Shape Sustainable Corporate Activity:

The United States ranked first among 21 countries most actively using the tax code to influence sustainable corporate activity, according to the inaugural edition of the KPMG Green Tax Index, reflecting the country's extensive and long-established program of federal tax incentives for energy generally, including specific incentives for energy efficiency, renewable energy and green buildings.

Japan, the United Kingdom, France, South Korea and China were also among the leading countries using tax as a tool to drive sustainable corporate behavior, according to the index. Key policy areas explored in the index include energy efficiency, water efficiency, carbon emissions, green innovations and green buildings.

"The KPMG Green Tax Index provides important directional insight for corporate sustainability decision makers, CFOs and board members into how countries are using taxes to influence corporate behavior," said John Gimigliano, principal-in-charge of sustainability tax in the Washington National Tax practice of KPMG LLP. "Japan, for example, tops the rankings in its promotion of tax incentives for green vehicle production, while the United States favors a comprehensive system of renewable energy tax incentives. As a result, we're seeing more green cars coming out of Japan and dramatic growth in the U.S. renewable sector."


April 29, 2013 in Tax | Permalink | Comments (1) | TrackBack (0)

Sen. Coburn's Bill Would Strip NFL, NHL & PGA of Tax-Exempt Status

NFLThink Progress:  The NFL Is a Tax-Exempt Organization — But One Senator Wants to Change That:

Oklahoma Sen. Tom Coburn (R) today introduced an amendment to the Marketplace Fairness Act that would end the practice of allowing professional sports leagues to qualify as tax-exempt organizations, a move that would hit leagues like the National Football League, the Professional Golfers Association (PGA) Tour, and the National Hockey League, among others.

Since 1966, the tax code has allowed leagues to classify as 501(c)(6) charitable organizations — a classification used by trade and industry organizations — under the assumption that the leagues were promoting the general value of their sports. But Coburn’s amendment asserts that the leagues are not non-profits engaged in the promotion of their sports but instead are businesses interested solely in the promotion of their business; that is, the NFL isn’t so much concerned about promoting the general sport of football as it is concerned with promoting NFL football, because it is the NFL brand and the NFL teams and logos and products that make it a profitable business. The NFL, for instance, didn’t seem interested in promoting the general spread of football when a competitor league, the United States Football League, was formed in 1983. Likewise, the PGA Tour, NHL, and other sports leagues serve to promote their brand of their sports, not the sport as a whole.

Further, the leagues hardly pay their executives as if they are non-profits. The NFL paid $51.5 million to just eight executives in 2010, according to Coburn, and other leagues are similar — PGA commissioner Tim Finchem made $5.2 million that year, while NHL commissioner Gary Bettman took home $4.3 million....

NFL teams pay membership dues totaling roughly $6 million per team, but they are allowed to write those off for tax purposes as donations to a charitable organization. As Andrew Delaney explained in the Vermont Law Review in 2010, the NFL, which collected $192 million in revenue largely through membership dues in 2009, then pours much of that money back into a stadium fund that allows owners to access interest-free loans as long as they secure taxpayer financing for either new stadiums or improvements to existing facilities. ...

Removing the tax-exempt status would force the leagues to acknowledge the reality that they are businesses, and they would be taxed as such. For the NFL, that would mean that membership dues and assessments would no longer be tax exempt, according to Delaney, and the profits run through the NFL’s or PGA’s tax-exempt organizations no longer would be either (the NFL runs multiple for-profit organizations, such as NFL Films.

(Hat Tip: Greg McNeal.

April 29, 2013 in Celebrity Tax Lore, Tax | Permalink | Comments (4) | TrackBack (0)

ABA Task Force on the Future of Legal Education: 'A Meeting of the Executive Officers of the Titanic'

Johnson: Auer/Seminole Rock Deference in the Tax Court

Pittsburgh Tax ReviewSteve R. Johnson (Florida State), Auer/Seminole Rock Deference in the Tax Court, 11 Pitt. Tax Rev. ___ (2013):

Deference doctrines involve the extent to which courts, in their interpretation of statutes and regulations, should be influenced by how the agencies charged with administering these authorities construe them. Deference doctrine has received enormous attention in the case law and the commentary during the past three decades, both in tax and in administrative law. In Gonzales v. Oregon, the Supreme Court identified three strands of deference doctrine: deference under Chevron, deference under Skidmore/Mead, and deference under Auer/Seminole Rock (hereafter “ASR”). The first and second strands in tax have been well rehearsed.

April 29, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Bergin: Real Transparency, Anyone?

Tax Analysts Christopher E. Bergin (President and Publisher, Tax Analysts), Real Transparency, Anyone?, 139 Tax Notes 571 (Apr. 29, 2013):

In a recent op-ed, House Ways and Means Committee Chair Dave Camp, R-Mich., and Senate Finance Committee Chair Max Baucus, D-Mont., said they were dedicated to working on legislation to reform the tax system in "an open and transparent fashion." Taking them at their word, Bergin urges the taxwriters to do just that.

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

April 29, 2013 in Tax, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

IDC Herzliya Hosts Symposium Today on Current Issues in International Taxation

IDCIDC Herzliya, Radzyner School of Law (Israel) hosts a symposium today on Current Issues in International Taxation:

  • Yariv Brauner (Florida), Competitiveness As an Appropriate Standard for Evaluation of Tax Policy
  • Yoseph M. Edrey (Haifa University School of Law), Intangible Assets: Capital v. Maintenance Expenses; Ordinary Income v. Capital Gain
  • Sagit Leviner (SUNY-Buffalo & Ono Academic College School of Law), The Intricacies of Tax & Globalization
  • Yoram Margalioth (Tel Aviv University School of Law). Taxing Wealthy People
  • Diane Ring (Boston College), Current Efforts to Tackle International Tax Evasion

April 29, 2013 in Scholarship, Tax, Tax Conferences | Permalink | Comments (0) | TrackBack (0)

WSJ: Are You Ready for the New 3.8% Investment Tax?

Wall Street Journal Tax Report:  Are You Ready for the New Investment Tax?, by Laura Saunders:

WSJIt's time to grapple with the new 3.8% tax on investment income.

The ordeal of 2012 taxes is barely over. But it isn't too early to understand and cushion the blow of the investment-income levy, which Congress passed in 2010 to help fund the health-care overhaul.

The tax, which took effect Jan. 1, applies to the "net investment income" of married joint filers who have more than $250,000 of income (or $200,000 for singles). Only investment income—such as dividends, interest and capital gains—above the thresholds is taxed. The rate is a flat 3.8% in addition to other taxes owed....

The new levy is one of several tax increases taking effect this year, including higher top rates on income and capital gains, limits on deductions, and an extra 0.9% payroll tax. But the 3.8% tax will cost many Americans even more.

The reason: an odd interaction between the regular income tax and the alternative minimum tax, or AMT, a separate levy that rescinds the value of some tax benefits. This year, many affluent taxpayers will have higher income because of new limits on exemptions and deductions. But this higher income will also help lower their alternative minimum tax.

As a result, many people paying AMT won't owe much more in 2013—unless they have investment income subject to the 3.8% tax....

The new levy is one of several tax increases taking effect this year, including higher top rates on income and capital gains, limits on deductions, and an extra 0.9% payroll tax. But the 3.8% tax will cost many Americans even more.

The reason: an odd interaction between the regular income tax and the alternative minimum tax, or AMT, a separate levy that rescinds the value of some tax benefits. This year, many affluent taxpayers will have higher income because of new limits on exemptions and deductions. But this higher income will also help lower their alternative minimum tax.

As a result, many people paying AMT won't owe much more in 2013—unless they have investment income subject to the 3.8% tax.

April 29, 2013 in Tax | Permalink | Comments (0) | TrackBack (0)

Am Law 100: Signs of a 'Fundamental Recovery' in the Legal Market

Amrican Lawyer:  Am Law 100 2013: Spring Awakening:

The Am Law 100's modest gains hint that a fundamental recovery is taking root.

In fiscal 2012, The Am Law 100 posted modest gains on our key metrics. For gross revenue, revenue per lawyer, and profits per partners, firms notched low single-digit year-over-year in­creases. But these averages belied the unevenness of the recovery. Only 76 firms reported gross revenue increases last year. And only 66 firms had profit per partner increases—down from 80 firms and 72 firms, respectively, on the previous year's Am Law 100 list.

The Am Law 100 showed small increases in all major metrics in 2012.

Total gross revenue $73,399,503,390 3.40%
Average revenue per lawyer $844,245 2.60%
Average profits per partner $1,467,303 4.20%
Average compensation-all partners $1,058,545 3.00%
Average value per lawyer $391,136 3.20%

Total head count 86,941 0.80%
Total equity partners 19,216 0.00%
Total nonequity partners 12,909 2.50%

Average leverage 3.52 0.90%
Average profit margin 38 0.00%

Update:  Deborah Jones Merritt (Ohio State), Is BigLaw Reviving?


April 29, 2013 in Legal Education | Permalink | Comments (1) | TrackBack (0)

TaxProf Blog Weekend Roundup

Sunday, April 28, 2013

President Obama and Conan O'Brien at Last Night's White House Correspondents' Dinner

Top 5 Tax Paper Downloads

SSRNThere is quite a bit of movment in this week's list of the Top 5 Recent Tax Paper Downloads, with new papers debuting on the list at #4 and #5:

1.  [346 Downloads]  Do Capital Income Taxes Hinder Growth?, by Chris William Sanchirico (Pennsylvania)
2.  [252 Downloads]  Thinking About Tax Malpractice: Outline and Hypotheticals, by Michael B. Lang (Chapman)
3.  [239 Downloads]  The Supercharged IPO, by Victor Fleischer (Colorado; moving to San Diego) & Nancy Staudt (USC)
4.  [182 Downloads]  Was Blackstone's Initial Public Offering Too Good to Be True?: A Case Study in Closing Loopholes in the Partnership Tax Allocation Rules, by Emily Cauble (DePaul)
5.  [164 Downloads]  Using a Sledgehammer to Crack a Nut: Why FATCA Will Not Stand, by Frederic Alain Behrens (J.D. 2013, Wisconsin)

April 28, 2013 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0) | TrackBack (0)

Mother (and Father) and Child Reunion

My wife and I are spending the weekend with our daughter at her college. It has been absolutely wonderful to spend time with her and her friends and to get a too-brief snapshot into her life here (more than compensating for the 3,000 non-Wi-Fi miles it took to get here -- shame on you, United) :

Dartmouth 1

Dartmouth 2

My wife and I bawled like babies last night at the college's showing of Any Day Now:


April 28, 2013 in Legal Education, Miscellaneous, Tax | Permalink | Comments (0) | TrackBack (0)

Radical Reformation and the IRS

Mason Powell (J.D. 2013, Kentucky), Note, Ecclesia Semper Reformanda Est: Radical Reformation and the IRS, 101 Ky. L.J. 207 (2013):

Section I discusses the importance of churches and the inherent semantical difficulties of creating a satisfactory definition to adequately define “church.” Section II will examine the irreducible ecclesiological minimums utilized by both the government and churches themselves. Section III will present my own irreducible ecclesiological minimum, a streamlined version of existing “law” that I propose is both legally and theologically satisfactory. Finally, Section IV of this note provides conclusory remarks and reiterates the need for, and difficulties inherent in, creating a legal definition for the church. 

April 28, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Saturday, April 27, 2013

Rapoport: U.S. News Rankings Management, Law Schools Gone Wild, and Enron

Doc1Nancy B. Rapoport (Interim Dean, UNLV), Managing U.S. News & World Report -- The Enron Way, 48 Gonz. L. Rev. 423 (2013):

This essay suggests that lying about the numbers that schools report to US News is no better than the lying that Enron did about its various methods of "earnings management." It also suggests that administrators -- being humans -- can talk themselves into lying about the numbers for all sorts of (very bad) reasons.

There have been a few big law school scandals that are either clear manipulations of data designed to game the U.S. News & World Report rankings or are reactions to the pressure of making the U.S. News “numbers” and filling a class. That yearly March-April collective decanal shudder or sigh of relief is much like how CEOs and CFOs must feel when they find out whether their quarterly earnings met, exceeded, or failed to meet their projected earnings. Make no mistake: the repercussions that accompany a school’s drop in the rankings (or when companies don’t meet their projected earnings) are ugly. That’s why schools spend so much time playing to the rankings and why companies can find themselves in hot—sometimes felonious—water with unsavory “earnings management” decisions that push a company into outright dishonesty. ...

With so many examples of “schools gone wild,” it’s difficult for law deans and law faculties to tell their students that lawyers shouldn’t lie. The law schools that have misstated their stats are sending the message that lawyers shouldn’t lie, unless: (1) lying will make their lives easier; (2) verifying the facts is too much trouble; or (3) the likelihood of getting caught—and punished—is low. That’s not the message that we should be sending. ... “Rankings management” just reminds me too much of the “earnings management” that I followed when I devoured every news article out there about the Enron scandal. ...

When schools focus on chasing the U.S. News rankings, they’re not doing so because they really believe that what U.S. News measures is what law schools should be doing. They’re doing so because higher rankings have positive ripple effects. Higher rankings mean getting applicants with better and better “numbers” each year, which in turn leads to yet even higher rankings. Higher rankings increase the odds that a graduate of that school will have better job opportunities. Higher rankings also increase the odds of a faculty member placing her article in a “better” law review. And, of course, higher rankings make the lives of deans, associate deans, assistant deans, and other administrators much easier. Those effects are nothing to sneeze at, and so people push as hard as they can to move up the ladder. 

But cheating at the rankings also imprints a school’s students and graduates. The same administration that is stressing adherence to an honor code and the importance of professionalism and ethics may be the one “construing” its answers and developing very delicate loopholes. Bad LSATs? Move those students to the part-time program! Part-time program LSATs now being counted in the rankings? Cut the entering class and admit lots of transfers! Placement low? Hire graduates as research assistants, unless they’re not good enough to do that type of work (in which case, hire them to do filing)!

Don’t think that deans aren’t aware of these options. We are. Then we wrestle with our “blush factor”: which decisions are legitimate “lawyering” decisions (what we’re teaching our students to do), and which ones are desperate attempts to keep from sliding a tier down? Everyone reaches a different blush-factor decision. I’ve made my peace with mine.

April 27, 2013 in Law School Rankings, Legal Education | Permalink | Comments (3) | TrackBack (0)

GAO: IRS Collected $5.5 Billion in 2007-2010 From Offshore Bank Cheats, But May Be Missing Billions More

GAO LogoThe Government Accountability Office yesterday released Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion (GAO-13-318):

Tax evasion by individuals with unreported offshore financial accounts was estimated by one IRS commissioner to be several tens of billions of dollars, but no precise figure exists. IRS has operated four offshore programs since 2003 that offered incentives for taxpayers to disclose their offshore accounts and pay delinquent taxes, interest, and penalties. GAO was asked to review IRS’s second offshore program, the 2009 OVDP. This report (1) describes the nature of the noncompliance of 2009 OVDP participants, (2) determines the extent IRS used the 2009 OVDP to prevent noncompliance, and (3) assesses IRS’s efforts to detect taxpayers trying to circumvent taxes, interests, and penalties that would otherwise be owed.

IRS has detected some taxpayers with previously undisclosed offshore accounts attempting to circumvent paying the taxes, interest, and penalties that would otherwise be owed, but based on GAO reviews of IRS data, IRS may be missing attempts by other taxpayers attempting to do so. GAO analyzed amended returns filed for tax year 2003 through tax year 2008, matched them to other information available to IRS about taxpayers' possible offshore activities, and found many more potential quiet disclosures than IRS detected. Moreover, IRS has not researched whether sharp increases in taxpayers reporting offshore accounts for the first time is due to efforts to circumvent monies owed, thereby missing opportunities to help ensure compliance. From tax year 2007 through tax year 2010, IRS estimates that the number of taxpayers reporting foreign accounts nearly doubled to 516,000. Taxpayer attempts to circumvent taxes, interest, and penalties by not participating in an offshore program, but instead simply amending past returns or reporting on current returns previously unreported offshore accounts, result in lost revenues and undermine the programs' effectiveness.

(Hat Tip; Bruce Bartlett, Francine Lipman.)

April 27, 2013 in IRS News, Tax | Permalink | Comments (0) | TrackBack (0)

Du Pont: Make Government Less Taxing

Wall Street Journal op-ed:  Make Government Less Taxing, by Pete Du Pont:

Americans don't like things that are inefficient, costly or unfair. Our federal tax code seems designed to be all three, a failing exacerbated by a patchwork of economically distorting subsidies and preferences found throughout the code and elsewhere. ...

We simply have to make some changes. We need a tax code that is flatter, fairer and simpler. Our code should retain its progressivity, but it can do so with lower rates and a wider tax base, something along the lines agreed by President Reagan and a Democratic Congress in the 1980s.

We need to cut back drastically on federal subsidies and preferences. The White House seems intent to repeatedly call for cuts in "oil and gas subsidies." Fine, but let's also cut back on subsidies for other industries. Let's cut agricultural subsidies, green energy subsidies, and any corporate welfare such as loan guarantees, research grants and targeted development funds. Federal subsidies for public broadcasting should be cut, as well as subsidies for Amtrak and speculative high-speed rail projects.

Fixing the tax code to make it encourage instead of discourage economic growth is critical for our nation's long-term success as it competes in the world economy. Cutting Washington's wasteful counterproductive efforts to take taxpayer dollars and hand them out to favored constituencies will not fully solve our deficit problem, but it would help. Putting the two together would be a strong start in solving our nation's economic problems and making our system efficient, cost effective, and fair.

April 27, 2013 in Tax | Permalink | Comments (2) | TrackBack (0)

Why FATCA Will Not Stand

Frederic Alain Behrens (J.D. 2013, Wisconsin), Comment, Using a Sledgehammer to Crack a Nut: Why FATCA Will Not Stand, 2013 Wis. L. Rev. 205:

The Foreign Account Tax Compliance Act (FATCA) became law in 2010 and is an important development in combatting income tax evasion. Under FATCA, American individual and corporate taxpayers must provide comprehensive information to the Internal Revenue Service (IRS) regarding foreign bank accounts. In addition, a more controversial part of FATCA requires foreign banks to report directly to the IRS certain information about financial accounts held by American taxpayers.

These drastic changes in American tax policy are alarming to the international financial community. International banks are forced to implement expensive compliance programs to satisfy the information reporting requirements. An increasing number of foreign financial institutions will no longer want any involvement with American citizens or investments. Furthermore, Americans living abroad might be forced to denounce their American citizenship in order to gain access to insurance and basic banking options.

In response to the unilateral imposition of FATCA, foreign governments and banks may lobby for its repeal. This Comment examines factors in the global movement to repeal FATCA and suggests several workable solutions that would be agreeable to the United States and foreign nations. Specifically, this Comment suggests how investment income withholding and increased IRS enforcement actions are a better solution to prevent income tax evasion.

April 27, 2013 in Scholarship, Tax | Permalink | Comments (8) | TrackBack (0)

Friday, April 26, 2013

District Judge Scolds Government, Sentences Elderly Widow to 5 Seconds of Probation in Offshore Tax Evasion Case

ATPI & Rice University Host Conference Today on International Tax Reform

The American Tax Policy Institute and Rice University's Baker Institute host a conference today on Reforming the U.S. System for Taxing International Income in Washington, D.C.:

The President and Members of Congress have called for reforms of our international tax system. Some view the system as broken and in need of fundamental reform. Others advocate incremental changes. Join us for a lively and informative discussion of a new set of papers from experts in law, economics and accounting addressing problems with the U.S. international tax system and analyzing the economic advantages and practical problems of moving to new systems for taxing the profits U.S. firms earn abroad. Discussants and moderators include leading practitioners, academics and policy analysts.

Panel #1:  Fixing the System;  An Analysis of Alternative Proposals for the Reform of International Tax
Jane Gravelle (Congressional Research Service)
Harry Grubert (U.S. Treasury Department)
Rosanne Altshuler (Rutgers)
Lee Sheppard (Tax Notes)
John Samuels (VP and Sr. Counsel-Tax Policy and Planning, General Electric)

Panel #2;  Designing a Territorial Tax System When the Treasury Is Empty
Reuven Avi-Yonah (Michigan)
J. Clifton Fleming, Jr. (BYU)
Robert J. Peroni (Texas)
Steve Shay (Harvard)
Eric Toder (Urban-Brookings Tax Policy Center)
Chris Sanchirico (Pennsylvania)

Panel #3:  Back to the Drawing Board: The Structural and Accounting Consequences of a Switch to a Territorial System
Peter Merrill (PricewaterhouseCoopers)
Ed Outslay (Michigan State)
Gary McGill (Florida)
Michael Donohoe (Illinois)
Mihir Desai (Harvard)
Jennifer Blouin (Pennsylvania)

Keynote Panel:  Three Views on the Most Important Goals for Tax Reform
Reuven Avi-Yonah (Michigan)
Michael Cabbalero (Covington & Burling, Washington, D.C.)
Mihir Desai (Harvard)

April 26, 2013 in Scholarship, Tax, Tax Conferences | Permalink | Comments (0) | TrackBack (0)

Goldberg: The Death of the Income Tax

DeathDaniel S. Goldberg (Maryland), The Death of the Income Tax:  A Progressive Consumption Tax and the Path to Fiscal Reform (Oxford University Press, 2013):

The Death of the Income Tax explains how the current income tax is needlessly complex, contains perverse incentives against saving and investment, fails to use modern technology to ease compliance and collection burdens, and is subject to micromanaging and mismanaging by Congress. Daniel Goldberg proposes that the solution to the problems of the current income tax is completely replacing it with a progressive consumption tax collected electronically at the point of sale.

  • takes a fresh look at what kind of tax system a 21st century nation should have and can achieve
  • offers to change the way every American will relate to his government by eliminating the annual tax return for many of them
  • proposes a transformational change in how the U.S. will be funded by taxation, which will have far-reaching ramifications

April 26, 2013 in Book Club, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

DeSantis: Reformulating a Soda Tax

Joseph Angelo DeSantis (Attorney, David, CA), Formulating a Soda Tax Fit for Consumption: A Pragmatic Approach to Implementing the Failed New York Soda Tax, 16 Mich. St. U. J. Med. & L. 363 (2012):

Previous attempts to levy a one-cent per-ounce tax on sodas, or sugar-sweetened beverages (SSB), have failed because they are modeled after a sin tax. This article proposes a different approach. An SSB tax should have two limited aims: (1) avoid implicitly demonizing soda consumption and (2) offset the cost of treating diseases attributed to SSB consumption. To these ends, this article explores using the basic principles of insurance to offset costs associated with risky behavior, without implicitly condemning that behavior. It further explores the link between SSB consumption and direct health costs to estimate a proper offset. Finally, this article addresses the question of redistributing the SSB tax revenue. It argues that the existing approach, using revenue to fund anti-soda campaigns and plug budget shortfalls, will not generate voter support. It proposes and evaluates two methods of redistributing revenue and discusses how they may increase the likelihood of adoption.

April 26, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Senate Releases Tax Reform Option Paper on Infrastructure, Energy, and Natural Resources

Senate LogoThe Senate Finance Committee yesterday released its fourth Tax Reform Option Paper, Infrastructure, Energy, and Natural Resources:

This document is the fourth in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs. The options described below represent a non-exhaustive list of prominent tax reform options suggested by witnesses at the Committee’s 30 hearings on tax reform to date, bipartisan commissions, tax policy experts, and members of Congress. For the sake of brevity, the list does not include options that retain current law. The options listed are not necessarily endorsed by either the Chairman or Ranking Member.

April 26, 2013 in Congressional News, Tax | Permalink | Comments (0) | TrackBack (0)

Washburn Hosts Tax Law Colloquium Today

Washburn Logo Washburn hosts its annual Tax Law Colloquium today:

Each year the Business and Transactional Law Center at Washburn University School of Law hosts a tax law colloquium. The colloquium provides the opportunity for tax scholars from around the country to meet and discuss scholarly projects on which they are working. In an informal setting the participants share ideas, provide feedback regarding scholarly works-in-progress, and enjoy the company of other tax scholars.

  • Art Cockfield (Queen's), The Limits of the International Tax Regime as a Commitment Projector
  • Zsuzsana Kadar (Thomson Reuters), Taxation of Positive Externalities Versus Taxation of Negative Externalities -- Should Tax be Used as a Regulatory Instrument?
  • Leandra Lederman (Indiana), Which Cases Settle? A Large-Scale Empirical Study of U.S. Tax Court Cases
  • Lori McMillan (Washburn), An Empirical Examination of the Noncharitable Nonprofit Subsector in Canada
  • Shu-Yi Oei (Tulane), In Defense of Tax Priority
  • Will Foster (Washburn), Swapping Equity and Efficiency

From last night's pre-conference dinner:

Continue reading

April 26, 2013 in Scholarship, Tax, Tax Conferences | Permalink | Comments (0) | TrackBack (0)

Brooklyn Law School to Permit Dismissal of Tenured Faculty for Lack of Collegiality or Poor Student Evaluations

Brooklyn LogoBrian Leiter (Chicago) reports that Brooklyn Law School's Board of Trustees has adopted rules permitting the termination of tenured faculty for "adequate cause," defined to include "demonstrated incompetence" -- "including but not limited to, multiple unsatisfactory performance reviews or complaints from supervisors; multiple complaints from students or multiple unsatisfactory student evaluations; sub-standard academic performance; lack of collegiality.” Brian notes:

"[T]hese standards are very alarming, and suggest the dangers associated with post-tenure review.  The inclusion of "lack of collegiality" in the definition of "adequate cause" is unbelievable. ... But at least as alarming is the fact that the definition equates "demonstrated incompetence" not with a peer review finding of pedagogical and scholarly incompetence, but with wholly unreliable and disreputable criteria like students evaluations, complaints from supervisors (which just smuggles "lack of collegiality" in the back door), and so on."

April 26, 2013 in Legal Education | Permalink | Comments (4) | TrackBack (0)

NY Court Dismisses Placement Data Fraud Lawsuit Against Brooklyn Law School

Brooklyn LogoNew York Supreme Court Justice David Schmidt on Monday dismissed a placement data fraud lawsuit against Brooklyn Law School by five of its alumni. Bevelacqua v. Brooklyn Law School, No. 500175/2012 (Apr. 22, 2013). New York courts previously have dismissed similar lawsuits against Albany Law School and New York Law School.

April 26, 2013 in Legal Education | Permalink | Comments (1) | TrackBack (0)

Tax Analysts Hosts Conference Today on State Taxes and the Cloud

TAC_Cloud_topTax Analysts hosts a roundtable discussion on State Taxes and the Cloud at the National Press Club in Washington, D.C. today at 9:00 - 11:00 a.m. EST:

Please join us for a roundtable discussion in which we will consider how states are approaching the challenge of taxing cloud computing technologies, and what they should think about in doing so.

  • Christopher E. Bergin (President and Publisher, Tax Analysts) (moderator)
  • Cara Griffith (Legal Editor, State Tax Notes)
  • Kelley Miller (Reed Smith)
  • Mark Nebergall (President, Software Finance and Tax Executives Council)
  • Dylan Waits (Managing Senior Policy Counsel, Washington Department of Revenue)

April 26, 2013 in Scholarship, Tax, Tax Analysts, Tax Conferences | Permalink | Comments (0) | TrackBack (0)

ATL's 2013 Law Revue Video Contest

Above the Law has announced the six finalists in its 2013 Law Revue Video Contest.  My two favorites are:

UCLADon't Call on Me:


West VirginiaLaw School (Parody of Maroon 5's Payphone):

April 26, 2013 in Legal Education | Permalink | Comments (0) | TrackBack (0)

Thursday, April 25, 2013

IRS Releases College and University Tax Compliance Report

IRS Logo 2IR-2013-44:  IRS Releases Final Report on Tax-Exempt Colleges and Universities Compliance Project;

The IRS today released its final report summarizing audit results from the IRS’ colleges and universities study, which began in 2008. This final report describes the agency’s multi-year project on a major segment of tax-exempt organizations.   

“The audits identified some significant compliance issues at the colleges and universities examined,” said Lois Lerner, Director, Exempt Organizations division. “Because these issues may well be present elsewhere across the tax-exempt sector, all exempt organizations need to be aware of the importance of accurately reporting unrelated business income and providing appropriate executive compensation.”

The attached final report focuses on two primary areas within the examinations: reporting of unrelated business taxable income, and compensation, including, employment tax and retirement plan issues. ...

Examinations have resulted in:

  • Increases to UBTI for 90% of colleges and universities examined totaling about $90 million;
  • Over 180 changes to the amounts of UBTI reported by colleges and universities on Form 990-T; and
  • Disallowance of more than $170 million in losses and Net Operating Losses (NOLs, i.e., losses reported in one year that are used to offset profits in other years), which could amount to more than $60 million in assessed taxes. ...
Overall, the average and median base salary and total compensation for the top management official of the colleges and universities examined, both public and private, were as follows:
  • Average base salary: $448,981; median base salary, $363,943
  • Average total compensation: $561,135; median total compensation, $458,152.

April 25, 2013 in IRS News, Tax | Permalink | Comments (0) | TrackBack (0)

Ventry: Reconsidering and Improving Existing Tax Subsidies for Housing

Dennis J. Ventry, Jr. (UC-Davis), Reconsidering and Improving Existing Tax Subsidies for Housing (PowerPoint slides here):

This testimony was given before a Joint Informational Hearing of the California Assembly Committee on Housing and Community Development and Committee on Revenue and Taxation on March 18, 2013 to provide a framework to assist the Committees in thinking about the advantages and disadvantages of using the tax system to subsidize aspects of housing policy in California.

Chief among his recommendations, Professor Ventry urged the committees to redesign all of the state’s tax expenditures purporting to promote homeownership. In particular, he advocated (i) abandoning federal adjusted gross income (AGI) as the starting point for determining state income tax liability, a move that would add billions of dollars in revenue to California’s coffers; (ii) eliminating usage of tax deductions as a delivery mechanism for housing tax benefits; (iii) restricting basis step-up on inherited property to cases of hardship; (iv) limiting the exclusion for capital gains on home sales by accounting for built-in gains due to inflation (in order to tax only real gains and not nominal gains); and (v) enacting a “Homeownership Tax Credit” in lieu of both the mortgage interest deduction and the property tax deduction.

April 25, 2013 | Permalink | Comments (1) | TrackBack (0)

Gamage & Shanske: The Trouble with Tax Increase Limitations

David Gamage (UC-Berkeley) & Darien Shanske (UC-Hastings; leaving for UC-Davis), The Trouble with Tax Increase Limitations, 6 Alb. Gov't L. Rev. 50 (2013):

In this symposium essay, we explore the theoretical implications of one particular type of fiscal limitation on state legislatures — namely, special Tax Increase Limitation rules (TILs). We argue that there is no meaningful content to the term “tax increase” as used in TILs. This incoherence allows legislative majorities who wish to do so to circumvent TILs. This fact about TILs, among others, explains the observed inefficacy of TILs in shrinking the size of state governments.

Furthermore, TILs are not just harmless political theater. When combined with other common features of state fiscal constitutions, particularly Balanced Budget Requirements (BBRs), they tend to amplify revenue volatility. Revenue volatility is far from an imagined horrible, but is currently creating severe challenges for state revenue systems. Moreover, TILs potentially undermine jurisdictional competition, which is a relatively more effective means for controlling the size of government.

April 25, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

CTJ: Stock Option Tax Break Saved Fortune 500 Corporations $27 Billion Over Past Three Years

CTJCitizens for Tax Justice, Executive-Pay Tax Break Saved Fortune 500 Corporations $27 Billion Over the Past Three Years; Apple & Facebook Biggest Beneficiaries of Stock Option Loophole:

Earlier this year, Citizens for Tax Justice reported that Facebook Inc. had used a single tax break, for executive stock options, to avoid paying even a dime of federal and state income taxes in 2012. Since then, CTJ has investigated the extent to which other large companies are using the same tax break. This short report presents data for 280 Fortune 500 corporations that, like Facebook, disclose a portion of the tax benefits they receive from this tax break.

  • These 280 corporations reduced their federal and state corporate income taxes by a total of $27.3 billion over the last three years, by using the so-called “excess stock option” tax break.
  • In 2012 alone, the tax break cut Fortune 500 income taxes by $11.2 billion.
  • Just 25 companies received more than half of the total excess stock option tax benefits accruing to Fortune 500 corporations over the past three years.
  • Apple alone received 12 percent of the total excess stock option tax benefits during this period, enjoying $3.2 billion in stock option tax breaks during the past three years. JP Morgan, Goldman Sachs and ExxonMobil collectively enjoyed 10 percent of the total.
  • In 2012, Facebook wiped out its entire U.S. income tax liability by using excess stock option tax breaks.
  • Over the past three years, Apple slashed its federal and state income taxes by 20 percent using this single tax break.

How It Works: Companies Deduct Executive Compensation Costs They Never Actually Paid
Most big corporations give their executives (and sometimes other employees) options to buy the company’s stock at a favorable price in the future. When those options are exercised, corporations can take a tax deduction for the difference between what the employees pay for the stock and what it’s worth (while employees report this difference as taxable wages).

Before 2006, companies could deduct the “cost” of the stock options on their tax returns, reducing their taxable profits as reported to the IRS, but didn’t have to reduce the profits they reported to their shareholders in the same way, creating a big gap between “book” and “tax” income. Some observers, including CTJ, argued that the most sensible way to resolve this would be to deny companies any tax deduction for an alleged “cost” that doesn’t require an actual cash outlay, and to require the same treatment for shareholder reporting purposes.

But instead, rules in place since 2006 maintained the tax write-off, but now require companies to lower their “book” profits somewhat to take account of options. But the book write-offs are still usually considerably less than what the companies take as tax deductions. That’s because the oddly-designed rules require the value of the stock options for book purposes to be calculated — or guessed at — when the options are issued, while the tax deductions reflect the actual value when the options are exercised. Because companies typically low-ball the estimated values, they usually end up with much bigger tax write-offs than the amounts they deduct in computing the profits they report to shareholders.

(Hat Tip: Francine Lipman.)

April 25, 2013 in Tax, Think Tank Reports | Permalink | Comments (3) | TrackBack (0)

Tax Credit Collateral in Secured Transactions

Christopher K. Odinet (Phelps Dunbar, Baton Rouge, LA), Testing the Reach of UCC Article 9: The Question of Tax Credit Collateral in Secured Transactions, 64 S.C. L. Rev. 143 (2012):

Whether you are a small, start-up business taking out your first loan or a large and sophisticated commercial borrower looking to engage in a complex and potentially high yielding transaction, most all borrowers can expect that they will be required to post a certain level of security to the lender for its loan. While many lenders may be more willing to advance funds to borrowers who have valuable assets and large amounts of liquid capital than they would a start-up company having few assets and little to no profits, each borrower will nonetheless be required to provide some level of collateral to secure its borrowed funds. The prudent lender wants to reduce the risk that the borrower will default and fail to repay the loan. In the event the borrower defaults, the lender wants to know that something of value — preferably equal to or greater than the value of the loan itself — can be quickly converted into cash to satisfy the debt. Thus, the availability of credit, and the ability to post collateral, have gone hand in hand since lending’s most early origins. In the financing world, what you get depends, in great part, on what you can give.

Continue reading

April 25, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

My Sequester Proposal

Air Force One and all government planes used for travel by Cabinet secretaries, other executive branch officials, and members of Congress and their staffs, must endure the same delays and cancellations as that suffered by the average traveler the prior day.

April 25, 2013 in Legal Education, Tax | Permalink | Comments (6) | TrackBack (0)

Jimmy McMillan: Law School Dean or Mayor of New York?

Following up on my prior post on The Law School Crisis: What Would Jimmy McMillan Do?, 31 Pepperdine Law 14 (Fall 2012):

Several years ago, I co-wrote an article on applying the principles from Michael Lewis’s Moneyball book to legal education (What Law Schools Can Learn from Billy Beane and the Oakland Athletics (82 Texas L. Rev. 1483 (2004)). The article asked what Billy Beane would do as the dean of a law school to capitalize on the inefficiencies in legal education. 

Perhaps a better model for the crisis facing legal education today is Jimmy McMillan, who ran for New York Governor in 2010 with the slogan “the rent is too damn high.” Law school tuition is simply too damn high. Administrators and faculty need to ruthlessly examine law school budgets and cut areas that are not essential to the school’s mission. Law school is twice as expensive as it was twenty years ago (in inflation-adjusted dollars), yet no one would argue that legal education is twice as good today.

Jimmy McMillan is now running for Mayor of New York City:

(Hat Tip: Joshua Blank.)

April 25, 2013 in Legal Education | Permalink | Comments (2) | TrackBack (0)

House Holds Hearing Today on Tax Reform and Residential Real Estate

House LogoThe House Ways & Means Committee holds a hearing today on Tax Reform and Residential Real Estate:

The hearing will consider how certain Federal tax provisions affect the housing sector and homeownership – and the benefits of such investment. It will explore how tax policy affects the relative level of investment between residential real estate and other parts of the economy (such as business investment).

Panel #1:

  • Mark Fleming (Chief Economist, CoreLogic
  • Eric Toder (Co-Director, Urban-Brookings Tax Policy Center)
  • Jane Gravelle (Senior Specialist, Congressional Research Service)
  • Mark Calabria (Director of Financial Regulation Studies, Cato Institute)
  • Phillip Swagel (Professor, University of Maryland School of Public Policy)

Panel #2:

  • Gary Thomas (President, National Association of Realtors)
  • Robert Dietz (Assistant Vice President for Tax and Policy Issues, National Association of Home Builders)
  • Thomas Moran (National Multi Housing Council and National Apartment Association)
  • Robert Moss (Housing Advisory Group) 

In connection with the hearing, the Joint Committee on Taxation has released Present Law, Data, And Analysis Relating to Tax Incentives for Residential Real Estate (JCX-10-13):

This document ... provides general background on the tax incentives for residential housing. The first part of this document describes the tax provisions that offer incentives for homeownership. The second part describes the tax provisions that offer incentives for rental housing. The third part provides a discussion of the economic incentives and data related to residential housing.

Several provisions of the Code provide favorable tax treatment to homeowners. These include: (1) the home mortgage interest deduction; (2) the deduction for real property taxes; (3) the exclusion of gain from sale of a principal residence; (4) tax-exempt bonds for owneroccupied housing; (5) mortgage credit certificates; (6) qualified first-time homebuyer distributions from an individual retirement plan; (7) exclusion from gross income of the rental value of parsonages and military housing allowances; and (8) exclusion from gross income of discharge of certain qualified principal residence indebtedness.

There are also some tax incentives that provide favorable treatment to rental housing. These include: (1) the low-income housing tax credit; (2) the rehabilitation credit; (3) the exclusion of interest on State and local government qualified private activity bonds for rental housing; (4) accelerated depreciation for rental housing; and (5) exceptions from the passive activity loss rules for rental real estate activities. Many of these incentives increase the rate of return to investment in the residential rental housing sector and may increase the supply of rental housing. 

Some of these provisions are broad in their applicability while others are relatively narrow in scope. For example, approximately 37 million returns claimed $394 billion of itemized deductions for home mortgage interest paid for 2010. That same year, only 41,733 returns claimed mortgage interest credits through mortgage credit certificates totaling $51.2 million.

While economists generally reason that subsidies may lead to inefficient outcomes, a rationale to subsidize homeownership may exist if there are spillover benefits (“externalities”) that accrue to someone other than the homeowner. For example, if homeowners maintain their homes better than renters, this may benefit others in the form of aesthetics or in fostering other desirable neighborhood characteristics such as lower crime. Part three of this document includes a review of the economic literature related to identifying and measuring the externalities of homeownership.

April 25, 2013 in Congressional News, Tax | Permalink | Comments (0) | TrackBack (0)

ABA Task Force Struggles to Make Legal Education Less Costly

Chronicle of Higher Education:  Accountability and Flexibility Are Said to Be Keys to the Crisis in Legal Education:

Finding solutions to the problems plaguing legal education will require holding law schools accountable while giving them the flexibility to craft strategies to educate lawyers who can find jobs, pay off their debts, and serve the millions of people who can't afford legal services.

That's the closest to a consensus that the ABA's legal-education task force seemed to reach during a morning-long discussion that was broadcast online on Wednesday.

The panel kicked off a daylong conference at Indiana University's Robert H. McKinney School of Law. The proceedings will be posted on the task force's Web site.

Jay Conison, dean of the Charlotte School of Law, moderated the morning's discussion, citing the "tremendous challenges and anxieties" facing legal education.

Among other ideas that have been floated as ways to make legal education less costly and services more affordable, experts have proposed:

  • Shortening law school from three years to two.
  • Allowing law schools to rely more on distance education.
  • Testing students on a series of competencies as they progress through law school and allowing those who reach a certain level to work as legal technicians.

The panel hopes to have a draft report ready by August or September to submit for approval by the ABA's governing body by November.

National Law Journal:  ABA Panel Struggles for Answers on Law School Reform:

It turns out that if you ask 30 different law professors, practitioners, judges and bar association leaders how to fix legal education, you'll get about 30 different answers.

The lack of consensus about what ails law schools and how to fix them was on display Wednesday during a daylong conference hosted by the ABA's Task Force on the Future of Education.

Participants in the forum struggled for agreement about what is driving the rising costs of legal education—or about how schools and regulators should respond to declining job prospects for new lawyers and flagging interest in law degrees.

"What the task force is doing is very difficult politically. It's very difficult conceptually. And its very difficult pragmatically," said Valparaiso University School of Law dean Jay Conison, the task force's reporter. ...

The task force hopes to release preliminary recommendations during the late summer or early fall, with a final report to follow in mid-November, said former Indiana Supreme Court Chief Justice Randall Shepard, its chairman. Members already have heard from several hundred people in public hearings and through written comments, he said. ...

The wide-ranging discussion,held at the Indiana University Robert H. McKinney School of Law in Indianapolis, veered from whether to use the ABA's law school accreditation standards to force change, to whether a law degree is even necessary for many of the emerging jobs in the legal industry.

The attendees also appeared to struggle with whether the task force's mission lies with the needs of law schools, the larger profession or the broader society. When asked specifically what should be done, the responses fell across the board.

Some said law schools should be required to spell out the core competencies that students should develop at set points during their legal educations; others, that tuition reduction was the first priority. Several attendees endorsed higher teaching loads. No single idea dominated.

The ABA's accreditation standards were a major focus. However, no consensus emerged about whether to relax the standards in order to give law schools more room to experiment with curricula, or to tighten them to force specific changes. ...

At several points throughout the day, panelists and task force members discussed the idea of a tiered system of legal education that students could exit at different levels depending on their career aspirations.

April 25, 2013 in Legal Education | Permalink | Comments (1) | TrackBack (0)

House Holds Hearing Today on The 2013 Tax Return Filing Season

House LogoThe Subcommittee on Oversight of the House Ways & Means Committee holds a hearing today on Internal Revenue Service Operations and the 2013 Tax Return Filing Season:

The hearing will focus on the 2013 tax return filing season, the IRS’ fiscal year 2014 budget request, and IRS operations generally.

April 25, 2013 in Congressional News, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 24, 2013

School's Out for Summer!

I taught my last classes of the academic year today -- thanks to my students in Federal Income Tax and Federal Estate & Gift Tax for a wonderful semester, and for coming to our home for dinner the past two nights!

Well we got no choice
All the girls and boys
Makin' all that noise
'Cause they found new toys
Well we can't salute ya
Can't find a flag
If that don't suit ya
That's a drag

School's out for summer
School's out forever
School's been blown to pieces

No more pencils
No more books
No more teacher's dirty looks

Well we got no class
And we got no principles (principals)
We ain't got no innocence
We can't even think of a word that rhymes

School's out for summer
School's out forever
My school's been blown to pieces

No more pencils
No more books
No more teacher's dirty looks

Out for summer
Out 'til fall
We might not come back at all

School's out forever
School's out for summer
School's out with fever
School's out completely

April 24, 2013 in Celebrity Tax Lore, Legal Education, Tax | Permalink | Comments (0) | TrackBack (0)

Leff Presents Tax Planning for Marijuana Dealers Today at Harvard

LeffBenjamin Leff (American) presents Tax Planning for Marijuana Dealers at Harvard today as part of its Tax Policy Seminar hosted by Stephen Shay:

In recent years, many states have legalized marijuana while the federal government continues to consider all marijuana sales and use illegal. But marijuana industry insiders consider not federal criminal law but federal tax law to be the biggest impediment to the development of a legitimate marijuana industry. State-sanctioned marijuana sellers are required to pay federal income taxes pursuant to § 280E, a formerly largely symbolic provision that Congress enacted to punish drug dealers, but which now could potentially drive legitimate marijuana sellers underground.

This paper proposes a tax strategy that enables state-sanctioned marijuana sellers to avoid the impact of § 280E by qualifying as a tax-exempt organization. The IRS has already stated that a marijuana seller cannot be exempt under § 501(c)(3) because the so-called “public policy doctrine” does not permit a charity to have purposes that are contrary to law. This paper proposes that a state-sanctioned marijuana seller could qualify as tax-exempt under § 501(c)(4), since the public policy doctrine only applies to charities, and § 501(c)(4) organizations are not charities. The organization would have to be operated to improve the social and economic conditions of a neighborhood blighted by crime or poverty, by providing job training, employment opportunities, and improved business conditions for commercial development in the neighborhood, just like many existing community economic development corporations that run businesses.

This novel argument is more than just a clever strategy – a “tax loophole” so to speak – to avoid the impact of § 280E. Rather, IRS recognition of tax-exempt status for marijuana sellers could actually provide a mechanism to resolve the federalism issues raised by the conflict between state and federal marijuana laws. A federal policy that incentivizes marijuana sellers to be non-profit, neighborhood-based organizations whose primary purpose is improving the neighborhood in effect ties federal approval to local support. By following this policy, the IRS would promote state and local policy harmonization by permitting community-based nonprofits to sell marijuana, but only when local community groups favored it. This would surely be better for the IRS than its current role as a lightning rod of the conflict between state and federal policy objectives.

April 24, 2013 in Colloquia, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)