Joint Tax Committee: Tax Code Provisions Implicated In Moore

Letter from Thomas Barthold (Chief of Staff, Joint Committee on Taxation) to Richard Neal (Ranking Member, House Ways & Means Committee) (Oct. 3, 2023):

This letter responds to your request for a delineation of present law provisions of the Internal Revenue Code of 1986, as amended (the "Code"), that could be affected by a ruling for the petitioners in Moore, which is currently before the Supreme Court. The question presented in Moore is whether the one-time transition tax imposed under section 965 (refened to in the petition for writ of certiorari as the "mandatory repatriation tax" or "MRT" is unconstitutional because it is an unapportioned direct tax and is not an income tax under the meaning of the Sixteenth Amendment.

According to the petition for writ of certiorari, the question presented for the court is "fw]hether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the states." By contrast, the brief of the United States in opposition to ceftiorari frames the question for the court as "fw]hether the MRT is a 'tax[] on incomes, from whatever source derived,' within the meaning of the Sixteenth Amendment."

The petitioners assert that the MRT is a tax on unrealized income and that Congress for purposes of the Sixteenth Amendment cannot tax unrealized income. They rely primarily on Eisner v. Macomber, 252 U. S. I 89 ( I 920), which the lower court found inapplicable to the Moores' case. The Government, in turn, asserts that the Constitution "does not restrict Congress to taxing only realized gains" and that, even if it did, the MRT is a tax on realized income. The Court may leave unanswered the question of whether the Constitution imposes a realization requirement if it finds that the MRT is a tax on realized income. This letter describes several types of present law provisions that may be implicated if the Court adopts certain definitions of realization suggested in the Petition or the petitioners' reply brief, along with a nonexhaustive set of examples of each type.

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CBO: A Call For New Tax Research

Congressional Budget Office, A Call for New Research in the Area of Taxes and Transfers:

As part of the legislative process, the Congressional Budget Office supplies the Congress with cost estimates for legislation, economic and budget projections, and other economic assessments. Information from the research community is an important element of CBO’s analyses. This is the seventh in a series of blog posts discussing research that would enhance the quality of the information that CBO uses in its work. (Earlier posts in the series discussed the need for new research in the areas of energy and the environment, finance, health, labor, macroeconomics, and national security.) Please send comments to [email protected].

CBO regularly provides the Congress with information about the ways that the government’s tax and transfer system affects the distribution of household income (for example, CBO 2022). That analysis is built on the models and data underlying the agency’s baseline projections of revenues and spending (CBO 2023). CBO is on the lookout for new research that would enhance its analysis of taxes and transfers, including research related to distributional analysis and projections of revenues from business income. The agency is currently working on those topics, and there are significant gaps in the relevant research literature.

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House Hearing: Biden’s Global Tax Surrender Harms American Workers And Our Economy

Following up on my previous posts:

• David Schizer (Columbia), Biden And The OECD’s Taxation Without Representation
• Phil Gramm & Mike Solon, Congress Can Halt Biden’s Rule By Regulation, Beginning With The OECD Global Tax Deal

The Tax Subcommittee of the House Ways & Means Committee held a hearing yesterday on Biden’s Global Tax Surrender Harms American Workers and Our Economy:

• Peter Barnes (International Tax Advisor & Of Counsel, Caplin & Drysdale), Witness Statement 
• Anne Gordon (Vice President, International Tax Policy, National Foreign Trade Council), Witness Statement
• Mindy Herzfeld (Professor of Tax Practice, University of Florida Levin College of Law), Witness Statement
• Adam Michel (Director of Tax Policy Studies, CATO Institute), Witness Statement
• Michael Plowgian (Deputy Assistant Treasury Secretary for International Tax Affairs), Witness Statement
• David Schizer (Dean Emeritus & Harvey Miller Professor of Law and Economics, Columbia Law School), Witness Statement

 

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State SALT Cap Workarounds: Past, Present, And Future

Richard Stephenson McEwan (J.D. 2023, Indiana-Maurer), Note, State Workarounds to the IRC's SALT Cap: The Past, the Present, and Building for the Future, 98 Ind. L.J. 667 (2023):

Recently, Congress has debated measures to provide some relief to taxpayers negatively impacted by the Internal Revenue Code’s State and Local Tax (SALT) deductibility limit. Although Congress has not yet budged on whether to adjust this cap, many states have taken it upon themselves to find creative workarounds to provide relief for their constituent taxpayers. In the face of an uncertain future for the current SALT cap, crucial questions exist for these state workarounds and those still to come. 

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Senate Hearing: The Rich Get Richer, Deficits Get Bigger — How Tax Cuts For The Wealthy And Corporations Drive The National Debt

The Senate Budget Committee held a hearing yesterday on The Rich Get Richer, Deficits Get Bigger: How Tax Cuts for the Wealthy and Corporations Drive the National Debt (video):

• Bruce Bartlett (Former Deputy Assistant Secretary, U.S. Treasury), Testimony
• Scott Hodge (Tax Foundation), Testimony
• Samantha Jacoby (Center on Budget and Policy Priorities), After Decades of Costly, Regressive, and Ineffective Tax Cuts, a New Course Is Needed 
• Bobby Kogan (Center for American Progress), Testimony
• Adam Michel (Cato Institute), Protecting American Families from Higher Taxes

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CBO Data: After-Tax, After-Transfer Income Inequality Has Been Flat Since 2000

Timothy T. Taylor (Macalester College), Income Inequality for US Households:

CBO has just published The Distribution of Household Income, 2019 (November 2022). ... A good chunk of the underlying data behind this report is from income tax data. This data has the great advantage that is isn’t from a survey asking people about their incomes, but is from what people actually filed with the Internal Revenue Service, with in turn is cross-checked with data from employers, financial institutions, and other types of income (like royalty payments). ...

The real strength of the report is not that it is up to the minute, but rather that it offers a snapshot in time along with useful sense of trends in income inequality since the late 1970s, when it began to rise. Here are a few of the graphs that caught my eye. ...

Here’s the trend in average federal taxes paid at the top of the income distribution in the last 40 years or so. You will notice that while the subject has been the source of considerable political controversy, the ups and downs have pretty much levelled out over time.

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Joint Tax Committee: Overview Of The Federal Tax System

The Joint Committee on Taxation has released Overview Of The Federal Tax System As In Effect For 2022 (JCX-14-22):

This document ... provides a summary of the present-law Federal tax system as in effect for 2022. The current Federal tax system has four main elements: (1) an income tax on individuals, estates, trusts, and corporations (which consists of both a “regular” income tax and, in the case of individuals, an alternative minimum tax); (2) payroll taxes on wages (and corresponding taxes on self-employment income) to finance certain social insurance programs; (3) estate, gift, and generation-skipping transfer taxes; and (4) excise taxes on selected goods and services. This document provides a broad overview of each of these elements.

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Joint Tax Committee: General Explanation Of Tax Legislation Enacted In The 116th Congress

The Joint Committee on Taxation has released General Explanation of Tax Legislation Enacted in the 116th Congress (JCS-1-22) (Mar. 8, 2022) (596 pages):

This document, prepared by the staff of the Joint Committee on Taxation in consultation with the staffs of the House Committee on Ways and Means and the Senate Committee on Finance, provides an explanation of certain tax legislation enacted in the 116th Congress.

For each provision, this document includes a description of present law, an explanation of the provision, and the effective date. Present law describes the law in effect immediately before enactment of the provision and does not reflect changes to the law made by the enacting legislation or by subsequent legislation. For a bill with a Committee report (or, in the absence of one, a contemporaneous technical explanation prepared and published by the staff of the Joint Committee on Taxation), this document is based on the language of the report (or explanation). This document follows the chronological order of the tax legislation as signed into law.

Section references are to the Internal Revenue Code of 1986, as amended, unless otherwise stated. ...

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Rep. Bill Pascrell Calls For Crackdown On Intentionally Defective Grantor Trust Stepped-Up Basis Tax Loophole

Press Release, Pascrell Pushes Treasury to Crackdown on Billionaire Tax Abuses; Oversight Chair Asks Yellen to Address Grantor Trust Loophole Manipulated by Wealthy:

U.S. Rep. Bill Pascrell, Jr. (D-NJ-09), the Chairman of the House Ways and Means Subcommittee on Oversight, today urged the U.S. Treasury Department to expand efforts to crackdown on tax abuse by wealthy families. Specifically, Pascrell called on U.S. Treasury Secretary Janet Yellen to issue regulations on irrevocable grantor trusts to limit rampant abuse of the infamous stepped-up basis tax loophole, which is used by some of the wealthiest Americans as a vehicle to avoid paying their fair share. Chairman Pascrell is the primary sponsor of H.R. 2286, legislation that would finally close the billionaires’ bonanza stepped-up basis loophole.

“The most glaring loophole in today’s income tax base is the ability of heirs to obtain tax-free stepped-up basis on appreciated assets they inherit upon the death of a taxpayer…. [T]he Department of the Treasury and the Internal Revenue Service under current law can take targeted actions to limit or even eliminate strategies that wealthy individuals and families use to exploit the stepped-up basis loophole,” Chairman Pascrell writes Secretary Yellen. “[I]t is imperative that wealthy individuals’ exploitation of the stepped-up basis loophole in the tax code be shut down where it can be, by prompt and aggressive regulatory action where there is a firm basis in law to do so.”

On December 7, 2021, Pascrell convened an oversight hearing on how wealthy families increasingly transfer property for generations to avoid ever paying taxes on vast fortunes. The hearing shed new light on how Americans are using states likes South Dakota and Wyoming over Switzerland and the Cayman Islands as favored tax havens to hide their money right within U.S. borders.

The text of Chairman Pascrell’s to Secretary Yellen is here.

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WSJ: The Internal Revenue Leak Service

Wall Street Journal editorial, The Internal Revenue Leak Service:

Democrats want to give $80 billion to the Internal Revenue Service to audit millions of Americans each year. Yet six months after the progressive website ProPublica first published the secret tax information of rich Americans, the tax agency still can’t explain what happened. Senate Republicans led by Iowa’s Chuck Grassley are demanding answers.

In a Dec. 1 letter to IRS Commissioner Charles Rettig, all 14 GOP Members of the Senate Finance Committee express frustration at how little the agency has discovered or reported on the ProPublica leak. Mr. Rettig promised when the leak occurred in June to find out what happened, but in September he told Senators, “We do not yet have any information concerning the source.” Since then it’s been crickets.

The scale alone should make investigating the breach a priority for the IRS. ProPublica claims to have thousands of individuals’ tax information, and it has continued publishing confidential details since its first report. Neither the publication nor federal authorities have said they know who leaked the records. No one seems to know, or least admit, how it was done, or how many more taxpayer files might have been stolen.

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Tax Profs Oppose Proposed Charitable Conservation Easement Curing Provision

Letter To Senate Finance Committee On H.R. 5376:

We are teachers, scholars, and practitioners in the fields of tax law, property law, natural resource management, and land use law. We write today to express our deep concern about a provision recently added to the Charitable Conservation Easement Program Integrity Act, that is now part of H.R. 5376, the “Build Back Better Act” (the reconciliation bill). This provision, if enacted into law, would open the door to widespread abuse of the charitable deduction for conservation easements and lead to a massive waste of taxpayer dollars. We urge you to omit the same or comparable language from a Senate bill and to work to ensure that it is not included in the final legislation.

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Federal Tax Revenues Soar 18%, Most In 44 Years, Primarily From Individual (+28%) And Corporate (+75%) Taxes

Congressional Budget Office, Monthly Budget Review: September 2021:

Total Receipts: Up by 18 Percent in Fiscal Year 2021 ...

Chris Edwards (Cato Institute), Federal Tax Revenues Soar:

New data from the Congressional Budget Office show that federal tax revenues are soaring. Despite the Republican tax cuts of 2017 and the ongoing pandemic, taxes are pouring into the U.S. Treasury. ...

The chart below shows the major sources of federal revenues from fiscal 2000 to fiscal 2021, which ended September 30. The GOP tax cuts were effective January 2018, which was part way through fiscal 2018. ...

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House Holds Hearing Today On Minding The Tax Gap: Improving Tax Administration For The 21st Century

The House Ways and Means Committee is holding a hearing today at 12:00 ET on Minding The Tax Gap: Improving Tax Administration For The 21st Century (livestream):

• Steven Dean (Brooklyn) (testimony:  "In my testimony today, I will explain why a race-blind approach to tax enforcement produces bad tax policy. I will use three very different examples to show why leaving race out of the equation fails to prevent bias and how destructive that bias can be for everyone. Ignoring race doesn’t solve problems, it creates them. You have already heard from ProPublica that the ten most heavily audited counties in the United States are Black and poor. I will tell you how we can do better.")
• Janet Holtzblatt (Tax Policy Center) (testimony)
• Mark Mazur (Deputy Assistant Secretary for Tax Policy, U.S. Treasury Department) (testimony)

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Joint Economic Committee Hearing On The Racial Wealth Gap In The United States

The Joint Economic Committee held a hearing yesterday on Examining the Racial Wealth Gap in the United States:

• Mehrsa Baradaran (UC-Irvine) (testimony:  "Unless targeted by concentrated and effective public policy coordinated across federal, state, and local governments, historic injustices that created the racial wealth gap will compound the gap. This testimony suggests several steps that can be taken to close the gap, which include housing, jobs, and childcare programs. This testimony also proposes that these efforts be coordinated, tracked, and measured across government agencies through a dedicated task force or agency established for a limited amount of time for the sole purpose of closing the racial wealth gap. Such a task force can be built within the existing federal administrative state. For example, the Minority Business Development Agency (MBDA) can be used for such a coordinating purpose. ")
• Dorothy A. Brown (Emory) (testimony:  "In my testimony today, I will discuss three ways that tax policies are increasing the racial wealth gap. The first looks at the tax breaks for marriage. The second looks at tax breaks for paying for college. The third looks at tax breaks for gifts and inheritances. But if there is one thing that I hope you take away from what I will be sharing with you is that the racial wealth gap will not be eliminated without a fundamental change in our tax laws.")
• Darrick Hamilton (The New School) (testimony:  "Reparations provides a retrospective, direct, and parsimonious approach to address the black-white racial wealth gap; moreover, it is a racially just policy because it requires the U.S to take public responsibility and atone for its long history of racial injustice.")

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Senate Holds Hearing Today On Creating Opportunity Through A Fairer Tax System

The Senate Finance Committee's Subcommittee on Fiscal Responsibility and Economic Growth holds a hearing today on Creating Opportunity Through a Fairer Tax System at 2:30 PM ET (live video here):

• Abigail E. Disney (CEO & Co-founder, Fork Films, New York), Testimony:
  I will go to bat for the wealth tax with any and all businessmen who want to tell you that it impinges on the American dream. If you have $50 million and do not know how to invest it for more than 2% growth, you have bigger problems than a wealth tax. If you have a billion dollars and don’t know how to live on $999 million, you don’t need a better tax system, you need a psychiatrist.
• Cheryl Straughter (Owner, Soleil, Boston), Testimony:
  Asking ultra-millionaires and billionaires to pay a small percent of their massive wealth is a no-brainer. If you have a huge fortune, and you benefit from all that this country has provided, you ought to be paying your fair share. It’s more than fair that they be asked to pay a small percent of their wealth – and I just can’t understand why the wealthiest and luckiest people in the world would be complaining about it being such a hardship.
• David Gamage (Professor, Indiana University, Maurer School of Law), Testimony:
  I am primarily devoting this written testimony to discussing the Ultra-Millionaire Tax Act of 2021 and the broader case for levying a federal tax on extreme wealth holdings. As is well known, both wealth and income inequality have exploded over recent decades, with the gains from economic growth disproportionately going to the richest Americans. Meanwhile, as I will explain, our tax system is broken as applied to the ultra-wealthy, with many harmful consequences. A new federal tax on extreme wealth holdings, like the Ultra-Millionaire Tax Act, should be a central component of reforms for fixing this disgraceful state of affairs.
  Secondarily, I will more briefly write in support of both the Real Corporate Profits Tax Act of 2021 and proposals for improving IRS funding and for making it and other tax enforcement funding less dependent on the annual appropriations process. All of these proposals go together as reforms for raising revenues needed for public investment while helping to fix some of the ways in which our tax system is currently broken and easily exploited by tax gaming by ultra-wealthy individuals and families and by large corporations. For the reasons I will explain, I strongly support all of these reform proposals.

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Senate Holds Hearing Today On Combatting Inequality: The Tax Code And Racial, Ethnic, And Gender Disparities

The Senate Finance Committee holds a hearing today on Combatting Inequality: The Tax Code and Racial, Ethnic, and Gender Disparities at 10:00 AM ET (live video here):

• Dorothy Brown (Emory)
  Testimony:  In my testimony today, I will discuss three ways that tax policies are more likely to provide tax breaks for white Americans than black Americans. The first looks at the tax breaks for marriage. The second looks at tax breaks for sales of homes. The third looks at tax breaks for employer provided retirement accounts. But if there is one thing that I hope you remember from what I will be sharing with you today it is that racial inequality is baked into how our tax laws operate.
• Mihir A. Desai (Harvard)
  Testimony:  While equity is commonly understood as a guiding principle of tax policy (along with efficiency and administrability), the specific issues raised in this hearing – the role of race, ethnicity, and gender — are important considerations that have not received the attention that they deserve. I applaud your willingness to engage these questions and, in particular, I’m delighted to share this opportunity with Professor Dorothy A. Brown, who has done so much to advance the agenda around race, in particular

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Tax Profs: Senator Warren's Wealth Tax Is Constitutional

Following up on Tuesday's post, Warren Revives Wealth Tax, Citing Pandemic Inequalities:  Letter To Senator Elizabeth Warren (Feb. 25, 2021):

Dear Senator Warren,
Your proposed wealth tax reform would impose a federal tax of 2% on taxpayers’ accumulation of net assets in excess of $50 million, and a 3% tax on net assets in excess of $1 billion. The 3% tax would increase to 6% if legislation establishing universal healthcare is in effect.

Article I Section 8 of the Constitution allows Congress to implement your proposed wealth tax reform as an exercise of the congressional taxing power. Some have suggested that a federal wealth tax would be a “direct tax” subject to the “apportionment rule” in Article I Section 2, which provides that “direct Taxes shall be apportioned among the several States … according to their respective Numbers.” A tax on an individual’s net wealth, however, is not a direct tax, and need not be apportioned among the states according to their population.

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National Taxpayer Advocate Erin Collins Delivers Her First Report To Congress

IR 2020-132 (June 29, 2020), National Taxpayer Advocate Erin Collins Delivers Her First Report to Congress; Identifies COVID-19 Challenges, CARES Act, and Taxpayer First Act Implementation As Priority Issues For Taxpayers:

National Taxpayer Advocate Erin M. Collins today released her first report to Congress, identifying taxpayer challenges arising from the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the IRS's implementation of the Taxpayer First Act as priority issues the Taxpayer Advocate Service (TAS) plans to focus on in the coming year. The report also assesses the 2020 filing season, identifies other TAS areas of focus, and includes the IRS's responses to administrative recommendations proposed in the National Taxpayer Advocate's 2019 annual report.

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CRS: The Section 199A Deduction — How It Works And Illustrative Examples

Congressional Research Service, The Section 199A Deduction: How It Works and Illustrative Examples (R46402 June 10, 2020):

Congress made numerous changes to the federal tax code for individuals and corporate and noncorporate businesses in December 2017, as part of P.L. 115-97 (referred to in this report as the 2017 tax revision but also known as the Tax Cuts and Jobs Act). At the core of the law was a permanent cut in the corporate income tax rate from a top rate of 35% to a flat rate of 21%.

During the congressional debate over the 2017 tax revision, pass-through business owners sought tax relief comparable to any reduction in corporate tax rates. Heeding this request, Congress added a new deduction under Section 199A of the federal tax code. The deduction allows pass-through business owners to deduct up to 20% of their qualified business income (QBI) in determining their personal tax liability. This reduces effective tax rates for pass-through business profits by up to 20%. Like most of the changes in the individual income tax in P.L. 115-97, the new Section 199A deduction is temporary: it is available from 2018 to 2025.

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House Holds Hearing On The Disappearing Corporate Tax

The House Ways and Means Committee held a hearing on Tuesday on The Disappearing Corporate Income Tax with these witnesses:

Jason Furman (Harvard), Testimony:

1. Corporate tax collections are very low both in historical perspective and compared with other countries. This contributes to the overall low level of revenue.
2. The 2017 tax law (Public Law 115-97) is a major reason for this revenue loss, with its total cost likely to be even larger than was estimated when the law originally passed.
3. There is no evidence that the 2017 tax law has made a substantial contribution to investment or longer-term economic growth. In fact, business investment growth has
   slowed to nearly a halt while economic growth has been propped up by increases in government spending.
4. Going forward, a well-designed business tax reform could both increase revenue and encourage more investment and innovation.

Rebecca Kysar (Fordham), Testimony:

1.  TCJA has failed to live up to its promise of broadening the tax base on the foreign income of multinational corporations, which was the quid pro quo for a lower corporate tax rate.
2. Treasury has weakened these already generous features of TCJA in the face of intense lobbying for business interests, which will further erode the U.S. tax base. Troublingly, many of these regulatory giveaways have no statutory basis

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CBO: Projected Changes In The Distribution Of Household Income, 2016 To 2021

CBO, Projected Changes in the Distribution of Household Income, 2016 to 2021 (Dec. 19, 2019):

Visual Summary
In this report, the Congressional Budget Office builds on its past analyses of the distribution of household income in the United States by projecting what that distribution would look like in 2021 under current law and comparing those projections with the actual distribution in 2016. In particular, this analysis focuses on how two factors—means-tested transfers and federal taxes—affect the distribution of income. Means-tested transfers are cash payments and in-kind benefits from federal, state, and local governments that are designed to provide assistance to individuals and families with low income and few assets. Such transfers include benefits provided through programs such as Medicaid and the Supplemental Nutrition Assistance Program (SNAP) but not social insurance benefits, such as Social Security and Medicare. Federal taxes consist of individual income taxes, payroll taxes, corporate income taxes, and excise taxes. 

Average Household Income
Average inflation-adjusted household income is projected to grow for all groups. Growth in average income—both before and after means-tested transfers and federal taxes are accounted for— is projected to be fastest for households in the highest quintile (or fifth) of the income distribution.

Cumulative Income Growth
Growth in income before transfers and taxes is generally slower than growth in income after transfers and taxes. That pattern reflects rising means-tested transfer rates and decreasing federal tax rates from 1979 (the first year for which data are available) to 2016.

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Joint Tax Committee Releases IRS Disclosures Of Tax Return Information, 2018

The Joint Committee on Taxation has released Disclosure Report For Public Inspection Pursuant to Internal Revenue Code Section 6103(p)(3)(C) For Calendar Year 2018:

Section 6103(p)(3)(C) of the Internal Revenue Code provides that the Secretary of the Treasury shall, within 90 days after the close of each calendar year, furnish to the Joint Committee on Taxation for disclosure to the public a report which provides, with respect to each Federal agency and certain other entities, the number of: (1) requests for disclosure of returns and return information (as such terms are defined in section 6103(b)); (2) instances in which returns and return information were disclosed pursuant to such requests or otherwise; and (3) taxpayers whose returns, or return information with respect to whom, were disclosed pursuant to such requests. In addition, the report must describe the general purposes for which such requests were made.

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President Trump Signs The Taxpayer First Act Of 2019

• Accounting Today, Trump Signs IRS Reform Bill Into Law
• Congress.gov, Taxpayer First Act of 2019
• The Daily Signal, Trump Signs Law Making It Harder for IRS to Seize Money From Americans
• The Hill, Trump Signs Bipartisan IRS Reform Bill
• Law360, Trump Signs IRS Revamp Legislation Into Law
• Press Release, Taxpayer First Act Becomes Law in Major Success for IRS Whistleblower Program
• Press Release, President Trump Signs Taxpayer First Act, Including Major IRS Whistleblower Reforms

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Oh: The Distributional And Tax Planning Consequences Of The Tax Cuts And Jobs Act

Jason Oh (UCLA), The Distributional and Tax Planning Consequences of the Tax Cuts and Jobs Act (Testimony Before the House Ways & Means Committee (March 27, 2019)):

The TCJA was the most significant overhaul of the tax system in over three decades. It is commendable that this committee is evaluating how this law affects the American public. We are fortunate to have the projections of the Joint Committee on Taxation and various think tanks, but the sheer amount of data can be overwhelming. The goal of my testimony is to crystallize that data into five major takeaways. I pair each takeaway with a figure that captures the point visually.

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Joint Committee On Taxation: Overview Of The Tax Gap

Following up on my previous post, House Holds Hearing Today On The Tax Gap:  the Joint Committee on Taxation has released Overview Of The Tax Gap (JCX-19-19) (May 08, 2019):

This document ... provides a standard definition of the tax gap, a description of issues relevant to measurement of the tax gap, and a discussion of taxpayer behavioral responses and the effectiveness of measures to increase compliance.  ...

A standard definition of the tax gap is the shortfall between the amount of tax voluntarily and timely paid by taxpayers and the actual tax liability of taxpayers. It measures taxpayers’ failure to accurately report their full tax liabilities on tax returns (i.e., underreporting), pay taxes due from filed returns (i.e., underpayment), or file a required tax return altogether or on time (i.e., non-filing). Estimates of the tax gap provide a picture of the level of overall noncompliance by taxpayers for a particular tax year, and include shortfalls in individual income taxes, corporate income taxes, employment taxes, estate taxes, and excise taxes. The individual behavioral responses to taxation that result in the tax gap raise a set of important policy questions, such as the optimal level of resources to devote to tax administration and the manner in which those resources are best deployed.  

The Internal Revenue Service (“IRS”) periodically conducts studies to estimate the size of the tax gap and analyze its components. Table 1 indicates that in the most recent study, the estimated annual gross tax gap, per year on average for tax years 2008-10, was $458 billion and the annual net tax gap, which is the gross tax gap adjusted for late payments and collections due to enforcement activities, was $406 billion. Adjusted for inflation, the gross and net tax gaps are $504 billion and $447 billion in 2016 dollars, respectively.  With total average tax liabilities of $2.5 trillion per year between 2008 and 2010, the voluntary compliance rate is 81.7 percent and the net compliance rate is 83.7 percent.

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House Holds Hearing Today On The Tax Gap

The House Ways & Means Committee held a hearing this morning on Understanding the Tax Gap and Taxpayer Noncompliance:

The Honorable J. Russell George
Treasury Inspector General for Tax Administration (TIGTA), U.S. Department of the Treasury
• Testimony

Benjamin Herndon
Chief Research and Analytics Officer, IRS
• Testimony

James R. McTigue
Director, Tax Issues, Strategic Issues, GAO
• Testimony

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Yin: Congressional Testimony On The House Ways & Mean Committee's Authority To Obtain President Trump's Tax Returns

George K. Yin (Virginia), Testimony Before the House Ways and Means Oversight Subcommittee on Legislative Proposals and Tax Law Related to Presidential and Vice-Presidential Tax Returns:

This submission is the testimony provided to the House Ways and Means Oversight Subcommittee in February 2019 on the ability of the chairman of the committee to obtain and disclose the tax return information of any taxpayer including the president. It describes the controlling law, the circumstances in which the chairman's request should be respected, and the conditions for disclosing the information to the public.

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Congressional Research Service: Digital Services Taxes

Congressional Research Service, Digital Services Taxes (DSTs): Policy and Economic Analysis (R45532) (Feb. 25, 2019):

Several countries, primarily in Europe, and the European Commission have proposed or adopted taxes on revenue earned by multinational corporations (MNCs) in certain “digital economy” sectors from activities linked to the user-based activity of their residents. These proposals have generally been labeled as “digital services taxes” (DSTs). For example, beginning in 2019, Spain is imposing a DST of 3% on online advertising, online marketplaces, and data transfer service (i.e., revenue from sales of user activities) within Spain. Only firms with €750 million in worldwide revenue and €3 million in revenues with users in Spain are to be subject to the tax. In 2020, the UK plans to implement a 3% DST that would apply only to businesses whose revenues exceed £25 million per year and groups that generate global revenues from search engines, social media platforms, and online marketplaces in excess of £500 million annually. The UK labels its DST as an “interim” solution until international tax rules are modified to allow countries to tax the profits of foreign MNCs if they have a substantial enough “digital presence” based on local users. The member states of the European Commission are also actively considering such a rule. These policies are being considered and enacted against a backdrop of ongoing, multilateral negotiations among members and nonmembers of the Organization for Economic Cooperation and Development (OECD).These negotiations, prompted by discussions of the digital economy, could result in significant changes for the international tax system.

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Lesson From Congress: Overbearing Oversight?

Today’s lesson comes from Congress.  It is a primer on IRS oversight.  It was prompted by an amazing letter I found buried on my desk.  

In an October 2015 hearing, House Ways and Means Committee member Diane Black questioned then IRS Commissioner John Koskinen about the lack of IRS responses to 10 GAO oversight recommendations from July 2015. 

On October 23, 2015, Koskinen sent her a letter.  The letter explained the status of the 10 oversight recommendations.  It then also explained the status of 200 additional recommendations from the prior three years, recommendations the IRS had also not responded to.  Of the 210 total, 167 had not yet reached their original due dates for responsive actions.  The other 43 were late but had received extensions from the oversight bodies who had made the recommendations: the Government Accountability Office (GAO) and the Treasury Inspector General for Tax Administration (TIGTA). 

The number 210 is not the amazing part.  The amazing part is that the letter explained that during that same three-year period, the IRS has dealt with some 1,240 oversight recommendations just from GAO and TIGTA.  That number does not even include the myriad directives and orders from various Congressional oversight committees, nor the yearly Congressional-mandated oversight from the National Taxpayer Advocate.  Thinking about the FTE’s needed to address just these 1,240 recommendations makes me dizzy. 

I think you will be impressed by the amount of oversight the IRS is subject to; I make no prediction on whether your impression will be good or bad.  But I hope today's lesson helps you understand that, as the IRS re-opens with its depleted workforce, it faces more than the tsunami of correspondence from worried taxpayers, and a first return filing season under the wicked complexities of the Tax Cuts and Jobs Act.  It must also keep responding to a relentless review of every facet of its operations.  Most of the review is done in good faith.  Some of it is not, as I explain below the fold.  But either way, one can reasonably ask how much is too much.  Does the amount of oversight truly make for better tax administration, or not.

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Joint Tax Committee Releases General Explanation Of The Tax Cuts And Jobs Act

A last-minute Christmas gift:  Joint Committee on Taxation, General Explanation Of Public Law 115-97 (JCS-1-18) (Dec. 20, 2018) (457 pages):

This document, prepared by the staff of the Joint Committee on Taxation in consultation with the staffs of the House Committee on Ways and Means, the Senate Committee on Finance, and the Treasury Department’s Office of Tax Policy, provides an explanation of Public Law No. 115–97 (also referred to as the ‘‘Act’’ throughout). The explanation of the provisions follows the order of the Act.

For each provision, the document includes a description of prior law, an explanation of the provision, and the effective date. The prior law section describes the law in effect immediately prior to enactment and does not reflect changes to the law made by the provision or by subsequent legislation. For contemporaneous legislative history related to the Act, please see the relevant House Ways and Means Committee report, the reconciliation recommendations submitted by the Senate Budget Committee, and the Conference Report. This document includes citations to some, but not necessarily all, regulations and other administrative guidance issued as of the time of publication of the document. These citations are included strictly as reference tools for readers.

Democrats Plan To Examine Trump’s Tax Returns After Midterm Election; Strategy Could Be Applied To Anyone's Tax Return

Politico, Democrats Planning To Examine Trump’s Tax Returns After the Midterms:

The years-old mystery of what’s in President Donald Trump’s tax returns will likely quickly unravel if Democrats win control of at least one chamber of Congress.

Democrats, especially in the House, are quietly planning on using an obscure law that will enable them to examine the president’s tax filings without his permission.

The nearly 100-year-old statute allows the chairmen of Congress’ tax committees to look at anyone’s returns, and Democrats say they intend to use that power to help answer a long list of questions about Trump’s finances. Many also want to use it to make public confidential information about Trump’s taxes that he’s steadfastly refused to release.

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Senate Report: Trump’s Tax Law And International Tax — More Complexity, Loopholes And Incentives To Ship Jobs Overseas

Senate Finance Committee Press Release, Wyden Report Details Truth Behind Republican, Trump Claims that Tax Scam Helps Workers, Increases Investment in U.S.:

Senate Finance Committee Ranking Member Ron Wyden, D-Ore., today released a Senate Finance Committee report that explores how Trump’s tax scam rewards multinational corporations, not workers, which will lead to fewer jobs here at home [Trump’s Tax Law and International Tax:
More Complexity, Loopholes and Incentives to Ship Jobs Overseas]. The report debunks false claims made by Republicans and Trump, and lists tactics multinational corporations will use to artificially lower their tax bills and shift profits overseas.

"Donald Trump and Congressional Republicans continue to peddle the false promises outlined in this tax scam report” Wyden said. “Republicans promised $4,000 wage increases and claimed the top priority of their tax law was promoting jobs in the United States. Their new international tax regime instead rewards companies for investing overseas while hardworking Americans watch their wages fall."

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House Panel Passes $1,000 Tax Break For Gym Memberships, Exercise Classes: 'It Violates Every Principle Of Tax Policy'

Wall Street Journal, House Panel Passes Tax Break for Gym Memberships, Exercise Classes:

Taxpayers would be able to claim new breaks for gym memberships, exercise classes and other fitness expenses under a bipartisan bill advanced Thursday in the House of Representatives.

The bill would consider those costs as medical expenses for tax purposes, enabling people to use tax-advantaged health-savings accounts and flexible spending accounts to pay for them. The break would be capped at $500 a year for individuals and $1,000 for joint filers. It would reduce federal revenue by $3.5 billion over a decade.

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NY Times: Government Work Done, Tax Policy Writers Decamp To Lobbying Jobs

New York Times, Government Work Done, Tax Policy Writers Decamp to Lobbying Jobs:

Six months after Republicans pushed a $1.5 trillion tax overhaul through Congress, many of the most influential players who worked behind the scenes on the legislation are no longer on Capitol Hill or in the Trump administration.

They are now lobbyists.

The two-way street between lobbying and lawmaking is well worn in Washington. But after President Trump’s campaign pledge to “drain the swamp,” there was some speculation that the so-called special interests might be sidelined. And while the frenetic two-month sprint last year to pass the tax legislation left some lobbyists marginalized, the businesses now scrambling to navigate the changes are increasingly recruiting the people who wrote it.

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Senate Holds Hearing Today On Charles Rettig's Nomination To Be IRS Commissioner

The Senate Finance Committee holds a hearing today on the nomination of Pepperdine Law School graduate Charles Rettig's nomination to be the Commissioner of the IRS.

Bloomberg, Trump's IRS Nominee to Face Questions on Management Experience:

President Donald Trump’s nominee to lead the Internal Revenue Service, Charles Rettig, has spent decades helping wealthy and famous people fight the agency’s efforts to collect taxes.

At a Thursday confirmation hearing, the criminal tax lawyer from Beverly Hills, California, will face questions from lawmakers about whether he’s qualified to run the IRS. Democrats will question whether he has the management skills to run an agency struggling to implement the biggest tax overhaul in a generation. ...

Rettig, 61, who has represented the estate of Michael Jackson and the creator of the "Girls Gone Wild" video franchise, probably will win the 51 votes needed for confirmation in the Republican-controlled Senate.

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Senate Holds Hearing Today On Early Impressions Of The New Tax Law

The Senate Finance Committee holds a hearing today on Early Impressions of the New Tax Law (livestream at 2:30 pm EST):

We are just four months into our new, modernized tax system and we have already started to see tax reform’s benefits roll in — companies are investing their savings in America’s workforce, utility bills are dropping, and dollars that were locked out overseas are coming home,” Chairman Hatch said. “But given that this was the largest tax rewrite in more than three decades, we still have work to do to support the new law’s implementation. This hearing will allow Finance Committee members to take a look at early impressions of the new tax code.

Witnesses:

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CBO: The Distribution Of Household Income, 2014

Congressional Budget Office, The Distribution of Household Income, 2014:

In 2014, household income was unevenly distributed: Households at the top of the income distribution received significantly more income than households at the bottom of the distribution. According to the Congressional Budget Office’s estimates:

• Average income among households in the lowest quintile (or fifth) of the income distribution was about $19,000 (see Summary Figure 1).
• Average income among households in the highest quintile was about $281,000.

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GOP Could Use Treasury Gimmick To Avoid PAYGO Sequestration From Tax Bill

Following up on my previous post, Why the End of This Year Is the Worst Possible Time to Pass Tax Reform:  Sam Wice, The Gimmick Republicans Could Use to Avoid a PAYGO Sequestration, Yale J. on Reg.: Notice & Comment (2017):

Republicans plan to pass a deficit increasing tax-reform proposal, but the Pay-As-You-Go Act (PAYGO) would require a sequestration, an automatic reduction in spending, if tax reform increased the deficit.  Republicans could avoid a sequestration by convincing Senate Democrats to support legislation lifting the sequestration.  Democrats, however, might not be willing to compromise on an issue that they believe that Republicans caused.  Nevertheless, Republicans have a gimmick they could unilaterally use to avoid a sequestration.  Specifically, Republicans could use the Treasury Department’s estimate, which claims that the economic growth from tax reform would pay for its costs.

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The Impact Of The GOP Tax Bill On Higher Education: Taxes On Large Endowments, $1 Million Compensation Are In; Taxes On Tuition Remission And Logo Licensing, Private Activity Bond Restrictions Are Out

Chronicle of Higher Education, Final Tax Bill Would Spare Some Higher-Ed Worries, but Could Lead to State Budget Cuts:

The Republican-backed tax overhaul is headed for final floor votes in Congress without some of the measures that would directly target higher education. Notably, a proposed tax on tuition waivers for graduate students and other college employees is no longer in the compromise legislation. But a high-profile tax on the investment earnings of some of the largest college endowments stayed in the bill. ...

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Davis Polk's Tax Cuts And Jobs Act Navigator

Following up on my weekend posts:

• GOP Finalizes Tax Bill, House And Senate Expected To Approve Conference Agreement Next Week: (Dec. 16, 2017)
• Bloomberg Tax, Tax Reform Roadmap (Dec. 17, 2017)

Davis Polk, Tax Cuts and Jobs Act Navigator:

We are pleased to release our first “TCJA Navigator,” a hyperlinked version of the Conference Committee’s tax reform bill released on December 15th.

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GOP Finalizes Tax Bill, House And Senate Expected To Approve Conference Agreement Next Week

• Conference Committee, Statutory Language
• Conference Committee, Joint Explanatory Statement
• Conference Committee, Download Estimated Budget Effects
• Congressional Budget Office, Cost Estimate
• Davis Polk, Conference Statutory Language Redlined Against Senate Version

Press coverage:

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Joint Tax Committee: Comparison Of The House And Senate Tax Bills

Joint Committee on Taxation,  Comparison of the House- and Senate-Passed Versions of the Tax Cuts and Jobs Act (JCX-64-17) (Dec. 7, 2017) (51 pages):

This document ... compares the provisions of the House- and Senate-passed versions of the Tax Cuts and Jobs Act (“TCJA”).

Largely following the organization of the House bill, the document is divided into four sections, individual tax reform, business tax reform, taxation of foreign income and foreign persons, and exempt organizations. Within each section of the document, provisions of the legislation are divided into three categories: (1) provisions for which there are no differences between the House bill and the Senate amendment; (2) provisions for which there are differences between the House bill and the Senate amendment; and (3) provisions that are in only the House bill or the Senate amendment. Except for provisions that are only in the Senate amendment, within each category provisions are generally listed in the order in which they appear in the House bill.

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'Holy Crap': Experts Find Tax Plan Riddled With Glitches

Politico, 'Holy Crap': Experts Find Tax Plan Riddled With Glitches:

Republicans’ tax-rewrite plans are riddled with bugs, loopholes and other potential problems that could plague lawmakers long after their legislation is signed into law.

Some of the provisions could be easily gamed, tax lawyers say. Their plans to cut taxes on “pass-through” businesses in particular could open broad avenues for tax avoidance.

Others would have unintended results, like a last-minute decision by the Senate to keep the alternative minimum tax, which was designed to make sure wealthy people and corporations don't escape taxes altogether. For many businesses, that would nullify the value of a hugely popular break for research and development expenses.

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Senate Passes 479-Page Tax Bill 51-49; House And Senate Bills Now Go To Conference

Senate Budget Committee, Senate Bill (479 pages) (Congress.Gov)

• CNN, Here's What's in the Senate Tax Bill — And How It Differs From the House's Bill
• Huffington Post, Dems Erupt In Anger After ‘Corrupt’ Tax Bill Passes The Senate
• New York Times, Vast Tax Overhaul Clears the Senate, 51-49
• New York Times, How They Voted
• New York Times, Here’s Help Deciphering the G.O.P. Tax Plan
• New York Times, Deficit, Once a G.O.P. Priority, Takes a Back Seat to Cuts
• New York Times, Who Gains From the Tax Plan? Economists Face Off
• New Yorker, The Passage of the Senate Republican Tax Bill Was a Travesty
• Slate, Senate Republicans Pass Their Massive Tax Bill
• Tax Foundation, Key Changes in Senate Tax Reform Bill Heading into the Vote-a-Rama
• Tax Foundation, Important Differences Between the House and Senate Tax Reform Bills Heading into Conference

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Oei & Ring: Will Proposed Tax Legislation Tilt The Worker Classification Debate?

Shu-Yi Oei & Diane Ring (On Labor), Will Proposed Tax Legislation Tilt the Worker Classification Debate? 

Tax reform is in the air. On Thursday, November 9, Senate Republicans released a Description of the Chairman’s Mark (prepared by the Joint Committee on Taxation (JCT)), which contains in substance the Senate version of proposed tax reform legislation. Among other things, that JCT description stated that the bill would clarify the treatment of many workers as independent contractors by providing a safe harbor that, if satisfied, would guarantee such treatment. But in the modification to the Chairman’s Mark released on November 14, that safe harbor provision was stricken from the Senate bill.

In a blog post on TaxProf Blog, we expressed concern about this worker classification clarification provision. In brief, our worry was that even though the legislation “clarifies” the treatment of workers as independent contractors and arguably simplifies some aspects of their tax compliance burdens, it also carries potentially important ramifications for broader fights over worker classification that are occurring in the labor and employment law area.

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Senate GOP Tax Bill Includes A 'Harvey Weinstein Tax'

USA Today, Beer, Booze and a Harvey Weinstein Tax Make It Into the Latest Senate Tax Overhaul Plan:

Sex and booze made it into the congressional battle over taxes in a late-night revision.

The latest changes to a Senate Republican tax plan, released at 10:30 p.m. on Tuesday, include tax cuts for producers of beer, wine and liquor, and a new provision that might be called the Harvey Weinstein tax: An end to corporations' ability to deduct attorney fees and settlement payments in sexual harassment or abuse cases if there is a nondisclosure agreement. ...

The change dealing with lawsuit settlements was proposed by Sen. Bob Menendez, D-N.J., and spokesman Juan Pachon said it was motivated by publicity about settlements over harassment by Hollywood producer Weinstein and former Fox News commentator Bill O'Reilly.

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Oei & Ring: The Senate Tax Bill And The Battles Over Worker Classification

Shu-Yi Oei (Boston College) & Diane M. Ring (Boston College), The Senate Tax Bill and the Battles over Worker Classification:

Senate Republicans released their version of tax reform legislation on Thursday, November 9. The legislative language is not available yet, but the Description of the Chairman’s Mark (prepared by the Joint Committee on Taxation) suggests that one of the key provisions in the bill will clarify the treatment of workers as independent contractors by providing a safe harbor that guarantees such treatment. The JCT-prepared description tracks the contents of the so-called “NEW GIG Act” proposed legislations introduced by Congressman Tom Rice (R-S.C.) in the House and Senator John Thune (R-S.D.) in the Senate in October and July 2017, respectively. “NEW GIG” is short for the “New Economy Works to Guarantee Independence and Growth (NEW GIG) Act.” But notably, and as we further discuss below, the legislation is not limited in its application to gig or sharing economy workers.

Assuming the Senate Bill adopts the basic parameters of the NEW GIG proposed legislation — which looks to be the case based on the JCT-prepared description — we have some concerns. In brief, this legislation purports to simply “clarify” the treatment of workers as independent contractors and to make life easier for workers by introducing a new 1099 reporting threshold and a new withholding obligation. But the legislation carries potentially important ramifications for broader fights over worker classification that are raging in the labor and employment law area. Despite possibly alleviating tax-related confusion and reducing the likelihood of under-withholding, we worry that there are quite a few underappreciated non-tax hazards for workers if these provisions go through.

Summary of the Legislation

The legislation (assuming the Senate Bill more or less tracks the NEW GIG Act language) purports to achieve such “clarification” of worker classification status by doing the following:

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The Only Person Mentioned In The Republican Tax Bill Is ... Steph Curry

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Zelinsky: The House Appropriations Committee And The Johnson Amendment

Edward Zelinsky (Cardozo), The House Appropriations Committee and the Johnson Amendment:

The Committee on Appropriations of the US House of Representatives, in a so-called rider to the pending federal budget bill, has proposed significant procedural restrictions on the IRS’s ability to enforce the Johnson Amendment. The Johnson Amendment is the provision of the Internal Revenue Code which prevents all tax-exempt institutions (including churches) from participating in political campaigns. The Committee’s budget rider is the most recent salvo in the ongoing dispute about churches and politics.

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Senate Holds Hearing Today On International Tax Reform

The Senate Finance Committee held a hearing today on International Tax Reform:

• Kimberly Clausing (Reed College) (testimony)
• Itai Grinberg (Georgetown) (testimony)
• Stephen E. Shay (Harvard) (testimony)
• Bret Wells (Houston) (testimony)