International Tax is a relatively new legal system that lacks clear objectives and principles. These principles, which guide unilateral legislation and multilateral coordination, have not been discussed thoroughly through the lenses of jurisprudence and legal philosophy. This paper offers a unique jurisprudential analysis of normative International Tax principles by redefining them and clarifying several basic assumptions.
FROM THE CHAIR Your Tax Section Supporting the Profession By Eric Solomon (Ernst & Young, Washington, D.C.) On May 9-11, 2019, the Tax Section held its May Tax Meeting in Washington, DC. Representatives from the IRS and Treasury were able to attend the May meeting and shared their perspectives on recent developments. The featured speaker at the plenary session on Saturday, May 11, was IRS Commissioner Charles P. Rettig.
FROM THE EDITOR Tax Section Launches Podcasts By Linda M. Beale (Wayne State) We are delighted to announce the launch in this issue of the ABA Tax Times of a new feature, People in Tax Podcasts. These conversations will provide insight into the various careers in tax enjoyed by our members and information about career trajectories, from education through involvement in the Tax Section’s many activities.
This article summarizes and provides context to understand the most important developments in federal income taxation for the year 2018. The items discussed primarily consist of the following: (i) significant amendments to the Internal Revenue Code; (ii) important judicial decisions; and (iii) noteworthy administrative rulings and regulations promulgated by the Service and Treasury. The article focuses primarily on subjects of broad general interest — tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties.
Evan Phoenix, a graduate of Saint Thomas University School of Law, will be working with the Bet Tzedek Legal Services in Los Angeles, California, to provide tax education, advocacy, and representation on behalf of current military service members, veterans, and ESL (English as a second language) taxpayers.
Andre Robinson, a graduate of Loyola University New Orleans College of Law, will be working with the Low-Income Tax Clinic at Southeast Louisiana Legal Services in New Orleans, Louisiana to provide education and tax services to taxpayers returning to society after being incarcerated, as well as to micro-business and small-business owners.
Higher Education and Taxation: Are We Getting Tax Policy Right for the Mission of Education? The country is in a battle over the role, place, and funding of higher education. Who is it for? How should it be financed? What should it provide? The tax law impacts higher education in significant ways. This panel will examine those impacts and consider whether we get that policy right, and whether any changes are needed. The 2017 Tax Act imposed new taxes on colleges and universities with large endowments and big salaries. What will be the impact of these changes? Should public universities be able to elect in and out of section 501(c)(3) status? If so, should they be subject to a special set of rules? For-profit higher education providers are increasingly converting to nonprofit status in order to take advantages of benefits provided to tax exempt entities. Should there be rules limiting the entry of for-profit organizations? Tax law also impacts student borrowing. Do we get the incentives right or could we do better in structuring those incentives to benefit those in need?
FROM THE CHAIR Your Changing Tax Section By Eric Solomon (Ernst & Young, Washington, D.C.) The Tax Section held its Midyear Tax Meeting in New Orleans on January 17-19. Numerous panels addressed the continuing deluge of guidance relating to the 2017 Tax Act, such as proposed regulations regarding qualified opportunity funds and final regulations regarding the 20% deduction for sole proprietors and owners of pass-through entities (section 199A), as well as additional guidance regarding the many new international tax provisions.
PEOPLE IN TAX Interview with Jeremiah Coder By Thomas D. Greenaway (KPMG, Boston, MA) The Tax Times interviewed Jeremiah Coder, a contributing author to The National Law Review and past contributing editor of Tax Analysts.
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Anastassia Kolosova, a graduate of the University of Michigan Law School, will be working with the Accounting Aid Society, in Detroit, Michigan, to conduct outreach and education activities for specific vulnerable populations in Detroit and expand the organization’s ability to provide legal representation to low-income taxpayers.
Omeed Firouzi, a graduate of Villanova University Charles Widger School of Law, will be working with Philadelphia Legal Assistance to provide education and legal assistance to workers misclassified as independent contractors and conduct advocacy and awareness efforts to decrease the practice among employers in Philadelphia.
Teaching Taxation: Tax Advice in the Age of the 24-Hour News Cycle Recent instances of exposure by the press of aggressive tax planning and tax avoidance by prominent businesses, individuals or families raise unique substantive, ethical, and other legal issues for the tax community. Practitioners advising famous clients may need to assess not only the likelihood of future examinations, but also public disclosure due to whistleblowers, cooperators, and data leaks. Reporters investigating past tax compliance may recruit tax professionals for technical assistance and expertise to uncover suspect transactions, unreported income, or improper deductions or credits. The release of such information, and related commentary from various media outlets, may pressure Federal and state tax authorities, law enforcement officials, or regulators to open audits or investigations that could result in substantial tax adjustments and/or various civil and criminal penalties. This panel will explore these issues from a variety of perspectives.
Teaching Taxation: Current Developments in Individual, Corporate, Partnership, and Estate & Gift Taxation This session will review the most significant statutory enactments, judicial decisions, IRS rulings, and Treasury regulations promulgated during the last twelve months that affect general income taxation, corporate taxation, partnership taxation, wealth transfer taxation, and tax procedure.
FROM THE CHAIR The Tax Section Serving the Tax System By Eric Solomon (Ernst & Young, Washington, D.C.) The Tax Section held its Fall Tax Meeting with the Trust & Estate Division of the Real Property, Trust & Estate Law Section in Atlanta on October 4-6. Over 950 people attended. There was much to discuss, especially the recent regulatory guidance relating to the 2017 Tax Act.
PEOPLE IN TAX Interview with Patricia A. Cain By Thomas D. Greenaway (KPMG, Boston, MA) The Tax Times interviewed Professor Patricia Cain from Santa Clara University. Professor Cain writes frequently about taxation and estate planning for same-sex couples and has co-authored one of the leading texts used in Sexuality and the Law courses.
First Prize ($5,000): Colin T. Halpin (Washburn), A Step in the Right Direction: The Effects of the Tax Cuts and Jobs Act on the Alternative Minimum Tax and the Need for Further Reform Faculty Sponsor: Lori McMillan
Second Prize ($2,000): Betting on an Uncertain Future: The Tax Consequences of Large Third-Party Litigation Financing Faculty Sponsor: Gregg Polsky
Kristin Hickman (Minnesota), Is Agency Guidance Reviewable (And If So, When)?:
This panel will look at what the federal courts have said about the reviewability of agency guidance, including the rescission of guidance, both in facial challenges and in the enforcement context. All conference attendees should be interested in this program given the important role of agency guidance and the inconsistent case law on the central question presented. Key issues that will be address will include: (i) the treatment of "guidance" within the Administrative Procedure Act (e.g., statements of policy and interpretative rules); (ii) how the courts have grappled with statements of policy and interpretative rules, including application of the APA's "final agency action" requirement; (iii) when "guidance" may be regarded as de facto "legislative rulemaking" for purposes of judicial review; and (iv) whether the form of publication (e.g., "demand letter" or enforcement v. generally applicable "policy bulletin" or "letter of interpretation") and means of publication (e.g., Federal Register, web posting, blast email) affects the question of reviewability, including the subsidiary question of administrative exhaustion. The practical skill attendees will take back to their respective practices after attending this session will be, among other things, a better understanding of the importance to judicial review of how guidance is drafted, i.e., how language is used to communicate the agency's message and the potential legal consequences of that language.
Shu-Yi Oei (Boston College) & Leigh Osofsky (North Carolina), The Role of Agencies in Legislative Drafting and Legislative Cleanup:
Individual & Family Taxation — SALT Deduction Limit Workarounds Panel. This panel will discuss the various strategies that States are implementing to provide a workaround to the 2017 Tax Act’s state and local tax deduction limit. In general, these programs use contributions to various state-sponsored funds or programs that offer a credit against state tax liability. The panel will evaluate and discuss the legal merits of such workarounds.
The rules that govern the tax basis and, by extension, the holding period of property received by an acquired corporation in an acquisitive reorganization are an unlovely patchwork that emerged from major changes to the tax law in 1986 and 1988. They not only fail to provide clarity but also do not reflect the fact that the acquired corporation, to the extent it engages in post-reorganization activity pursuant to the overall plan of reorganization, is in substance the agent of the acquiring corporation. Congress should amend the reorganization provisions to reflect this circumstance.
An alternative to traditional moot court competitions, the Law Student Tax Challenge asks two-person teams of students to solve a cutting-edge and complex business problem that might arise in everyday tax practice. Teams are initially evaluated on two criteria: a memorandum to a senior partner and a letter to a client explaining the result. Based on the written work product, six teams from the J.D. Division and four teams from the LL .M. Division receive a free trip (including airfare and accommodations for two nights) to the Section of Taxation 2019 Midyear Meeting, January 17-19, 2019 in New Orleans, where each team will defend its submission before a panel of judges consisting of the country’s top tax practitioners and government officials, including tax court judges. The competition is a great way for law students to showcase their knowledge in a real-world setting and gain valuable exposure to the tax law community. On average, more than 50 teams compete in the J.D. Division and more than 30 teams compete in the LL .M. Division.
Section 355 of the Internal Revenue Code permits a corporation that conducts multiple active businesses to distribute controlling stock ownership interests in one or more of such businesses to all or some of its shareholders on a tax-free basis, provided that various statutory and non-statutory requirements are met. Commonly known as “spin-offs”, “split-offs” and “split-ups”, qualifying section 355 distributions are often preceded by a transfer of assets (and sometimes liabilities) into the distributed controlled corporation, as part of an overall type “D” divisive “reorganization” described in section 368(a)(1)(D). Non-recognition treatment for at least some forms of corporate separations dates back to the Revenue Act of 1918. The 1954 Code iteration of section 355, which continues to provide the basic statutory framework for tax-free treatment, has been amended several times in order to tighten various qualification requirements and, in certain instances, to impose a corporate level tax on the distributing corporation (via sections 355(d) and (e)) even through the transaction still generates tax–free treatment at the shareholder level. In general, however, the primary distinguishing tax feature of section 355 transactions is that they permit tax-free treatment at both the shareholder and corporate levels, thus constituting the principal exception to the statutory repeal of the so-called General Utilities doctrine during the mid-1980s. The main premise of this article is that section 355 is due for a major overhaul.
FROM THE CHAIR A Time to Reflect By Karen L. Hawkins (Hawkins Law, Yachats, OR) A year serving as Chair of this Section seemed like a long time in August of 2017. Now as I approach August of 2018, I feel there is so much I won’t have time to finish (or start). That’s why succession is so important. Building on the positive legacies of those who came before you ensures those coming behind you will do the same.
FROM THE CHAIR-ELECT The Coming Year By Eric Solomon (Ernst & Young, Washington, D.C.) It is an honor for me to be the next Chair of the Tax Section, and a privilege to have the opportunity to serve our members, the tax community, and the public.
Under the cash method of accounting, generally taxpayers include income items that are received in the form of cash, checks, and property, in the year in which they are received. Under the cash equivalency doctrine, a promise to pay an amount in the future, even though it is a property right, generally will be included upon receipt only if the promise to pay constitutes a cash equivalent.
Whether an obligation is a cash equivalent is generally determined based on common law standards developed by the courts with some assistance from the Service. As a consequence, the current approach to cash equivalency suffers from the lack of a uniform standard. There is also uncertainty in applying the particular tests, given the fact-intensive, imprecise inquiry that is required. In addition, the current standards for cash equivalency may also present liquidity difficulties for taxpayers.
To address these problems, this article proposes a single test for determining whether an obligation calling for future payments is a cash equivalent.
These materials discuss as well as provide context to understand the significance of the most important judicial decisions and administrative rulings and regulations promulgated by the Service and Treasury during 2017. Amendments to the Code generally are not discussed except to the extent that they are of major significance, they have led to administrative rulings and regulations, or they have affected previously issued rulings and regulations otherwise covered by these materials. These materials focus primarily on topics of broad general interest — income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties.
FROM THE CHAIR May Meeting Recap By Karen L. Hawkins, Hawkins Law, Yachats, OR The Section enjoyed another successful meeting in Washington, D.C. Nearly 2,000 were in attendance at the Grand Hyatt to hear from the experts about recent tax legislation, including predictions for future guidance.
PEOPLE IN TAX Interview with Dana Trier By Thomas D. Greenaway, KPMG LLP, Boston, MA Dana Trier, long-time active ABA Tax Section member and former Corporate Tax Committee chair, most recently served as Deputy Assistant Secretary for Tax Policy in the U.S. Treasury Department. In this interview, he explains how he came into tax, how he helped develop the tax practices at several firms, his role in tax reform, and other topics.
Since December 2017, tax conferences in the United States have focused substantially on the H.R. 1 tax reform legislation. No surprise there — the 2017 changes are among the most significant in the past thirty years. But over the past five months, through attending numerous tax conferences featuring international tax practitioners, I’ve observed some interesting developments in the nature of the discussions and debates at these conferences. These changes are pretty revealing about the process of absorbing the true impact of the new tax law, particularly in international tax. This weekend’s ABA May Tax Section Meeting in Washington, D.C. highlighted some of these trends.
FROM THE CHAIR Midyear Wrap-Up and a Look Ahead By Karen L. Hawkins, Hawkins Law, Yachats, OR The Section’s Midyear Meeting in San Diego was a resounding success. The committees once again provided timely and top-notch continuing education presentations and materials on myriad aspects of the new tax law.
AT COURT Estate Portability: Sowers Reap Unexpected Harvest in Estate of Sower v. Commissioner By James Lynch, Sobel & Co., LLC, Livingston, NJ In 2010, Congress introduced into the tax code the concept of portability for certain estates. Each estate has an applicable exclusion amount. Under portability, the executor of the estate of a deceased spouse may elect to give the surviving spouse that deceased spouse’s unused applicable exclusion amount (DSUE). In the recent case of Estate of Sower v. Commissioner, the Tax Court provided some guidance on the audit of the return of the first deceased spouse.
For over four decades there have been unrelenting calls to make the tax code “fair, simple, and efficient.” But despite nine major tax acts between 1969 and 2003, along with many less extensive tax acts, the refrain for a “fair, simple, and efficient” tax code has continued to be heard. This continuing plea is not surprising, because over the decades the tax system has evolved to ask the highest income earners to pay less in taxes, become ever more complex, and eschewed “efficiency” in favor of the allowance of an ever-increasing number of tax preferences. Tax act after tax act failed to produce a fair, simple, and efficient tax code. The recently enacted Tax Cuts and Jobs Act is simply another failure to enact tax reform that provides a fair, simple, and efficient tax code. The call for a “fair, simple, and efficient” tax code has become a mere trope. True “tax reform” entails revising the tax code better to meet normative tax policy criteria.
First Prize ($5,000): David Berke (Yale), Reworking the Revolution: Treasury Rulemaking & Administrative Law Faculty Sponsor: Anne L. Alstott
Second Prize ($2,500): Daniel W. Blum (NYU), Treaty Shopping and its Prevention in a Post-BEPS World Limitation-on-Benefits, Beneficial Ownership and the Principal Purpose Test: Evolution, Underlying Rationales and Interrelation Faculty Sponsor: H. David Rosenbloom
Luncheon Plenary Address: Edward Kleinbard (USC), Perversion of the Tax Policymaking Process: The Tax Cuts and Jobs Act can be criticized on many substantive grounds, and for its effect on deficits. But the legislative process also revealed important shortcomings beyond its haste. Traditional tax policy metrics — conventional revenue estimates, dynamic estimates and distributional analyses — yield misleading results in a tax framework that loses over one trillion dollars. The result is that the legislation has even more deleterious welfare implications than these standard metrics suggest.
Teaching Taxation Program: Evolving Constraints on Tax Administration: The IRS and Treasury Department have faced increasing budget and legal constraints over the past few years. Treasury is also experiencing limits on its rulemaking, both from the current Presidential Administration and from courts applying administrative law, such as with respect to the anti-inversion regulations. IRS budget constraints and workforce decreases started around 2011, and the IRS’s image has suffered following a 2013 report from the Treasury Inspector General for Tax Administration (TIGTA) on the IRS’s review of applications for determination of tax-exempt status. A 2017 TIGTA report revisited that issue in a balanced way, but where does it leave the IRS? This panel will look at how we got here, what it means, and what the ideal environment for tax administration looks like. The panelists will discuss the recent cases of Altera and Chamber of Commerce and assess how the IRS, taxpayers, and counsel should proceed given the ever-evolving constraints on tax administration. Philip Hackney (LSU), Kristin Hickman (Minnesota), Leandra Lederman (Indiana), Kerry Ryan (St. Louis)
The full program is here. Other Tax Profs with speaking roles include:
Along with Karen Hawkins, the current Chair of the ABA Tax Section, I am proud to announce that The Tax Lawyer, the flagship journal of the ABA’s Tax Section, will be moving to Northwestern in the fall of 2018. We look forward to the beginning of a close and engaging relationship with the Editorial Board and the Council of the ABA Tax Section. David Cameron will become the Faculty Editor, supervising student and faculty involvement in the publication process.
In order to assist in the publication of The Tax Lawyer, Northwestern will select a six-to-eight member Student Editorial Board from among the admitted students in each of our future LLM classes. In order to encourage highly-qualified applicants to apply to, and matriculate at, Northwestern and to serve as student editors, we have created The Northwestern Pritzker Dean’s Scholarship Fund. Importantly, Dean’s Scholars will receive scholarships equal to the cost of tuition [$63,558] at Northwestern.
Karen L. Hawkins (Chair, ABA Tax Section), The Tax Lawyer Enters a New Era:
I am pleased to report that the negotiations first reported in my fall column of ABA Tax Times are complete. The Tax Section has finalized an agreement with the Northwestern University Pritzker School of Law to engage students from its full-time Tax LL.M. Program as student editors of our flagship journal, The Tax Lawyer. We believe this new relationship offers enhanced opportunities for the Section, and a new vision for The Tax Lawyer that will serve our members for years to come.
FROM THE CHAIR So Much To Do, So Little Time By Karen L. Hawkins (Hawkins Law, Yachats, OR) Notwithstanding the challenges of going forward with a meeting in Austin, Texas, in the midst of one of the worst hurricane seasons in recent history, the committees did their usual stellar jobs in providing top-notch continuing education presentations and materials for the attendees.
AT COURT Gaylor v. Mnuchin - A Step Toward Greater Clarity on Clergy Tax Exemptions? By Adam Chodorow (Arizona State) On October 6, 2017, the U.S. District Court for the Western District of Wisconsin declared section 107(2) of the Internal Revenue Code unconstitutional. The provision permits "ministers of the gospel" to exclude from income compensation designated as a housing allowance, thus giving churches and other religious organizations the ability to provide tax-free housing to their ordained ministers. The government foregoes around $800 million in revenue per year as a result of this provision, and, if the decision stands, it could have a significant impact on churches and other religious institutions.
The story of how tax attorneys came to dominate the fields of tax policy and sophisticated tax practice is the success story of an organized professional association. The prominence of the role of attorneys in the development and practice of the tax law was not a foregone prerequisite of the U.S. federal income tax system. Rather, the professional organization of attorneys into a specialized group within bar associations has played a significant role in making lawyers the central players in tax policy and tax practice in the U.S.
For such readers, I regret that you have not read this incredible fantasy adventure series. Not only because it’s good, but because references such as mine abound. Me nem nesa. A particularly amusing and creative spin comes from the otherwise staid ABA Section on Taxation. Each year the Tax Section puts out a “Tax Challenge” for both J.D. students and LL.M. students. This year’s Tax Challenge looks at some tax implications from GOT. Here’s how it starts:
To: ABA Taxation Section Teaching Taxation Committee members From: Karen L. Hawkins, Chair, Taxation Section Re: Reimbursement for Academic leaders and speakers
As all of you are aware by now, during the business meeting of the Taxation Section Council, difficult financial decisions were made. These types of difficult belt-tightening decisions have had to be made over the past two years, and will continue to be required to reach, and maintain, a revenue neutral budget. If the Section is to maintain its stated commitments to provide services to its membership; tax assistance to vulnerable taxpayers; and leadership in support of a workable tax system, it is imperative that we continue to cut expenses while also seeking additional ways to increase income.
A hot topic among professors at the recent ABA Tax Section meeting in Austin was the reduction in travel support for academics scheduled to take effect with the upcoming meeting in San Diego. As Prof. Bryan Camp wrote on TaxProf blog, the background is that, for years, and through the most recent meeting, full-time professors who have a leadership role in the section (Chair or Vice-Chair of a committee, or higher positions) have received a travel subsidy.
I previously blogged about a great panel presentation I attended at the Fall ABA Tax Section Meeting in Austin. The presentation was about how to sue someone under § 7434 for filing a false information return.
This past week one of the panelists, Stephen Olson, has blogged more about this subject here and here. The blogs are worth calling to your attention. He dives a bit deeper into this subject to look at whether an Information Return that states the correct payment amount but is otherwise false and misleading, is sufficient to support suit under § 7434.
Last week I went to the ABA Tax Section Meeting in Austin and really enjoyed attending a terrific panel on Section 7434. The moderator was Professor Leslie Book, of Villanova School of Law and the presenters were Stephen Olsen, of Gawthrop Greenwood, PC; and Mandi Matlock, of Texas RioGrande Legal Aid Inc., Austin, TX.
ABA Tax Section meetings are fun! Last week I attended a fascinating panel presentation at the Austin meeting titled "Beyond Bitcoin: Blockchain and the Tax System." The panel was moderated by Stow Lovejoy, of Kostelanetz & Fink, LLP and included Amanda Wilkie, CIO of Withum Smith & Brown; Tony Tuths, of KMPG in Short Hills; and Lisa Zarlenga, of Steptoe & Johnson.