Paul L. Caron

Wednesday, September 6, 2023

U.S. Tax Prof Presentations At The 2023 Tax Research Network Conference

U.S. Tax Prof presentations at the two-day Tax Research Network Conference at the Faculty of Law, University of Cambridge:

Tax research networkWednesday, September 6: 

Darien Shanske (UC-Davis; Google Scholar) & David Gamage (Indiana-Maurer; Google Scholar), Taxpayer Mobility and the Goal of Inclusive Prosperity:

Taxpayer mobility is often cited as a primary obstacle to progressive tax policies. However, this Article argues that mobility responses to taxation are often overemphasized. The empirical literature on taxpayer mobility sometimes characterizes responses as “large” merely because the responses are substantial enough to be measured with statistical significance. Yet, from a tax policy perspective, what should be considered “large” is partially a normative philosophical question. Applying a normative philosophical lens to the empirical literatures on taxpayer mobility, this Article concludes that there is no convincing evidence supporting the commonly held notion that taxpayer mobility should be considered a primary obstacle to enacting progressive tax policies—either for national-level governments or for subnational state and local governments. This does not imply that mobility responses are unimportant, however. This Article suggests policy responses to concerns related to taxpayer mobility for national governments and the international tax regime, for fiscal federalism and the interrelationship between national governments and subnational governments, and for subnational state and local governments acting on their own.

Michael Hatfield (Washington; Google Scholar), Safeguarding Taxpayer Data:

The Internal Revenue Service (IRS) collects more information on more individuals than any other government agency. The information is not only financial but personal, potentially including information about health care needs and decisions; the caregivers, disabilities, and foreign birth of children; the educational progress and felony convictions of students; and one’s religious and charitable associations. In acknowledging the vast quantity of information held by the IRS, and the necessity of taxpayers trusting tax administrators with their information, Congress provided greater protection for taxpayer information under the Internal Revenue Code (IRC) than it was provided under the Privacy Act. Congress obligated IRS employees to keep taxpayer information confidential, and authorized felony charges and damages suits, including punitive damages for inappropriate disclosures of taxpayer information. These special protections were enacted almost fifty years ago, long before the spread of the Internet and emergence of cybercrime. This Article proposes updating the IRC’s special protections for taxpayer information to reflect the cybersecurity objectives of the Federal Information Security Modernization Act (FISMA), and the frequent audits of the IRS by the Treasury Inspector General for Tax Administration that show the IRS’s persistent failures to comply with FISMA guidance, such as failing to encrypt taxpayer data, secure mainframe platforms, regulate system access, remediate known vulnerabilities, and assist victims of data breaches.

Young Ran (Christine) Kim (Cardozo; Google Scholar), Taxing the Metaverse, 112 Geo. L.J. __ (2024): 

The buzz surrounding the Metaverse has been growing steadily for the past couple of years, but the tax implications of this novel ecosystem remain fuzzy to most tax scholars. Such uncertainty is concerning, given the potential and momentum of this emerging technology. Although the Metaverse evolved from online video games focused only on user consumption, it now allows users to produce income and accumulate wealth entirely within the Metaverse. Current law seems to defer taxation of such until a realization or cash-out event. This paper challenges this approach.

This paper offers novel arguments justifying Metaverse taxation. Because economic activity within the Metaverse satisfies the Haig-Simons and Glenshaw Glass definitions of income, its exclusion will create a tax haven. Tax policy can also play an essential role in regulating the virtual economy. Furthermore, this emerging technology allows policymakers to modernize the tax system. The Metaverse’s ability to record all digital activity and track individual wealth can offer governments a unique opportunity to tax income immediately upon receipt and thus, overcome the traditional realization requirement and its incentive for tax deferral. Immediate taxation, such as a mark-to-market system, would be a more efficient and fairer approach so long as it could overcome intrinsic valuation and liquidity problems.

Therefore, this paper proposes that income and wealth within the Metaverse should be subject to immediate taxation. As support, it considers the tax implications of self-created virtual assets (like NFTs), loot drops, intra-metaverse exchanges, inter-metaverse exchanges, and cash-for-virtual goods exchanges. It also endorses the proposal for unliquidated tax reserve accounts (ULTRAs) as a mark-to-market taxation suitable to resolve immediate taxation’s valuation and liquidity issues. Finally, it demonstrates that governments can use the Metaverse as a laboratory for experimenting with cutting-edge policy, which may benefit broader audiences beyond tax policymakers interested in the Metaverse’s future.

Stephanie Hunter McMahon (Cincinnati), The Rule of Law Must Be  Administered:

An ideal tax system might assess tax liabilities based on what each person can afford to pay calculated according to a metric that all taxpayers accept. Instead, most governments strive to create generally applicable tax systems. Those systems grow beyond their operating statutes because statutes invariably contain ambiguity in their language or application. Therefore, tax guidance is created to enable the tax system to function. Guidance may also be needed because the legislature delegates discretion to create part of the tax system. These two reasons for guidance—ambiguity needing explication or purposeful gap-filling—creates different justifications for guidance. In both circumstances, tax guidance is a necessary tool for the tax system to be administered.

Since before the U.S. Supreme Court decided in 2011 that it was “not inclined to carve out an approach to administrative review good for tax law only” in Mayo Foundation for Medical Education & Research v. United States, the U.S. has struggled with the proper process to be used to create this necessary guidance, often ignoring the purposes the guidance is to serve. Issues of fairness and administrability often conflict. Looking at cases decided since 2011 on the validity of Notices that do not go through the notice and comment procedure as defined in the Administrative Procedure Act (APA), the applicability of reasoned decision making in deficiency notices, and what is required for regulations to survive an arbitrary and capricious review under the APA, the cases show that neither procedure nor administrability is consistently valued. Many may say that “tax exceptionalism” is dead and that considerations of administration have become uniform across agencies in the U.S., but the cases show that conclusion is premature. Instead of making anti-tax arguments, as made by judges in several cases, it would be better for tax administration and, thus, the rule of law, if judges respect the agency tasked with raising government revenue and center the role of administration in the application of the tax law. In doing so, the tax system would demonstrate the understanding that the system only truly applies the rule of a law with thoughtful consideration of its administration.

Henry Ordower (St. Louis; Google Scholar), Taxation as Hybrid Law: Civil/Common Law Convergence:

This presentation argues that tax is a hybrid of civil and common law, public and private law, and is cross-disciplinary. It observes that tax law has become an all-purpose tool for legislators. It seeks to demonstrate how the U.S., a common law jurisdiction, has turned to civil law models for taxation while civil law jurisdictions and the European Union have sought common law models to combat tax avoidance. The ubiquity of tax and its public law influence on private law transactions, its cross disciplinary nature, and its deployment as a legislative tool to manage the economy make it a candidate for reform targeting cross-border uniformity and systemic convergence – a motion that has begun and should continue to reach full uniformity.

Bret Wells (Houston; Google Scholar), The Enigma of BEPS, the United States, and Global Tax Cooperation?:

The OECD frequently lauds its Pillar 2 project as a cooperative global effort to ensure that large multinational enterprises pay a minimum tax regardless of where they are headquartered and regardless of the jurisdiction where their operations are located. The United States and at least 137 other nations have all agreed that global tax cooperation is consistent with their fiscal interests and their fiscal priorities. However, it is at this point that one should remember the admonition that “the devil is often in the details.” In Engima of the United States, Base Erosion, and the Global Minimum Tax, this article identifies those areas where the Pillar 2 model rules are deficient and where further reforms to the GloBE rules are necessary to ensure achievement of the agreed-upon aspirational goal. The article also sets forth how the United States and other like-minded nations should respond in this interim period where design deficiencies remain in the Pillar 2 model rules.

Thursday, September 7:

Diane (Klein) Kemker (DePaul & Southern; Google Scholar), The Rhetoric of Race and Poverty in U.S. Tax Law Casebooks:

U.S. law school courses are typically taught from a textbook called a “casebook,” a curated collection of important cases in the topic area, together with relevant statutes and related materials. The casebook is often the only book on a particular legal subject that students ever read (or read from, as such books are rarely read in their entirety). The casebook becomes the most authoritative book on that subject, and the perspectives and priorities it reflects, together with those of the faculty member who assigns and teaches from it, deeply shape how lawyers understand a subject.

The basic federal income tax course is one of the only widely-taught courses in the curriculum that explicitly focuses on economic issues. The myriad ways tax law casebooks address or avoid economic inequality, including race and poverty in America, merit more attention than they have formerly received.

I use tools drawn from literary analysis to analyze the casebook and its effects, particularly with respect to the depiction of poor people, people of color, and tax issues of special relevance to those individuals and families. Unlike typical casebook criticism, which treats the casebook as a neutral “container” of materials and seeks to solve identified shortcomings simply by putting different materials in the bucket, this analysis uses concepts of genre and ideological closure, drawn from rhetoric and literary theory, to argue that familiar responses to problems in a casebook (revision, supplementation, critiquing and “teaching against” the text) will not suffice. Instead, interventions that expose the rhetorical processes of ideological closure at work in the text, enable us to read the text contrapuntally, and generally more radically “crack open” the casebook, offer greater promise for releasing the generative, equality-minded, and liberatory potential of tax law taught critically.

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