Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Oei's Disentangling Power And Preferences In Tax Treaties Between Developing And OECD Countries

This week, David Elkins (Netanya, Google Scholar) reviews a new work by Shu-Yi Oei (Duke; Google Scholar), Disentangling Power and Preferences in Tax Treaties between Developing and OECD Countries Using Multilevel Modeling.

One of the linchpins of the international tax regime is the network of over 3,000 bilateral tax treaties. Of those, as noted by Prof. Oei, about 40% are between developed and developing countries. The primary goals of tax treaties are to prevent double taxation and to divide up taxing rights between the taxpayer’s country of residence (the home country) and the country from which the income is derived (the source country). However, it is often not necessary to conclude a tax treaty to prevent the taxation of the same income by more than one country. Foreign tax credits and territorial taxation are unilateral means by which counties can and do prevent double taxation. Moreover, these unilateral measures tend to give precedence to source countries. The question that has been raised in the literature is why developing countries, which to a great extent rely upon source taxation, would enter into treaties, the effect of which is to limit their ability to tax income deriving from their own territory.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Reis's The Gift Tax Treatment Of Loan Guarantees

This week, David Elkins (Netanya, Google Scholar) reviews Eric Reis (North Texas), Guaranteed Wealth? A New Way of Thinking About the Gift Tax Treatment of Loan Guarantees, 27 Fla. Tax Rev. _ (2024):

In this week’s feature article, Professor Eric Reis examines the gift tax consequences of gratuitous loan guarantees. A prototypical example is one in which a parent provides a guarantee for a loan to a child, where the child does not have enough assets or income to qualify for a loan on her own. As the author describes it, wealth is effectively transferred from the parent to the child because the child will benefit from the upside (if the asset appreciates more than the interest on the loan, the child will pocket the difference) but will have little to no exposure to the downside (if the asset depreciates in value, the parent will likely cover the difference). The author goes on to describe a number of similar structures involving children who are shareholders in corporations or beneficiaries of trusts and a parental guarantee of loans to the corporation or the trust.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews The Policy And Politics Of Alternative Minimum Taxes By Gamage & Glogower

This week, David Elkins (Netanya, Google Scholar) reviews David Gamage (Missouri-Columbia; Google Scholar) & Ari Glogower (Northwestern; Google Scholar), The Policy and Politics of Alternative Minimum Taxes, 78 Nat’l Tax J. _ (2024).

The first Alternative Minimum Tax (AMT) was enacted in 1978 following reports that wealthy taxpayers were able to avoid paying any income tax by exploiting numerous preferences available to them. Whatever the policy justifications for each particular preference, there was a widespread sentiment that wealthy taxpayers should nevertheless pay some income tax. Congress therefore provided that the minimum tax that one must pay is a certain percentage of one’s “alternative minimum taxable income,” which is equal to what one’s taxable income would have been were it not for a number of specified tax preferences. Such AMTs, in which Congress restricts with one hand the use of preferences that it grants with the other, are frequently met with derision among tax scholars. If the preferences are appropriate, in the sense that society is better off (by whatever measure one chooses to determine societal well-being) with them than without them, then there is nothing wrong with taxpayers actually benefiting from such preferences. 

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Fleischer's A New Look At Old Money

This week, David Elkins (Netanya, Google Scholar) reviews Miranda Perry Fleischer (San Diego; Google Scholar), A New Look at Old Money, 98 S. Cal. L. Rev. _ (2024).

Perhaps no tax generates as much visceral reaction as does the estate tax. To its proponents it promotes equality of opportunity, offsets to some extent the income tax advantages enjoyed by capital, and impedes dynastic wealth and power. To its detractors, who castigate it as the “death case,” it reeks of double taxation, discourages entrepreneurship and frugality, infringes on the rights of individuals to dispose of their property as they wish, is easily avoided by those who are its primary targets, and generates significant administrative and avoidance costs. 

In this week’s feature article, Prof. Miranda Perry Fleischer argues that in the field of tax policy in general, and estate taxation in particular, people often hold what appear to be inconsistent positions simultaneously. For example, around three-fifths of Americans believe that parents should be able to pass along whatever they wish to their children, even if that creates unequal opportunities at the societal level, while around two-thirds of Americans believe that the distribution of wealth is unfair and that it is unfair that children from wealthy families have access to better amenities such as schools.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Eyal-Cohen's Tax Incentives For Investment Crowdfunding

This week, David Elkins (Netanya; Google Scholar) reviews Mirit Eyal-Cohen (Alabama; Google Scholar), Tax Incentives for Investment Crowdfunding: A Comparative Analysis, 23 Colo. Tech. L. J. __ (2024).

Crowdfunding is a widely used method for individuals to raise funds, whether it be for a charitable purpose, a business, or a specific event. As online crowdfunding campaigns have become more common, questions arise regarding the role that tax law has to play in that phenomenon. For example, when the underlying motivation is primarily donative, questions arise as to whether the transfer is income to the recipient or provides a charitable deduction to the donor.

In this week’s feature article, Prof. Eyal-Cohen examines investment crowdfunding, which involves companies offering common stock, convertible debt, tokens, coins, or other assets to the general public using the internet. The questions that she raises are descriptive (how traditional rules of tax law are to be applied to this relatively new phenomenon), normative (whether Congress should encourage investment crowdfunding by means of tax incentives), and administrative (how to clarify the tax consequences for the participant in various crowdfunding initiatives).

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews The 16th Amendment And Congress’s Income Tax Power By Brooks & Gamage

This week, David Elkins (Netanya; Google Scholar) reviews John R. Brooks (Fordham; Google Scholar) & David Gamage (Indiana-Maurer; Google Scholar), “From Whatever Source Derived”: The Sixteenth Amendment and Congress’s Income Tax Power (2023). 

On June 26, 2023, the Supreme Court granted certiorari in Moore v. United States. With the exception of National Federation of Independent Business v. Sebelius (2012) (which upheld the Affordable Care Act and in the which the question of whether it was indeed a tax case was the key to the decision), it would be difficult to cite a tax case in the last century that can compete with the potential impact of Moore. Petitioners argue that Congress does not have the constitutional authority to tax unrealized gain. A broadly worded decision accepting that argument could invalidate large portions of the Internal Revenue Code, in addition to stymying efforts to impose a wealth tax or a tax on unrealized appreciation.

The familiar story is that the Constitution distinguishes between direct taxes and indirect taxes (although as Profs. Brooks and Gamage point out, the Constitution does not use the term “indirect tax,” instead referring to taxes that are not direct as “duties, imposts, and excises”).

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Morgan's Measuring Wealth Under A Wealth Tax

This week, David Elkins (Netanya; Google Scholar) reviews Robin Morgan (S.J.D. 2022, Harvard), Valuation: Measuring Wealth Under a Wealth Tax (2023).

Valuation is the Achilles heel of any tax system that relies upon…well, valuation. Income tax does its level best to avoid valuation, often simply by adopting a head-in-the-sand attitude and ignoring anything that is difficult to value. Unrealized appreciation is perhaps the notable example but others abound: disputed income, doubtful debt provisions, and certain types of fringe benefits to name a few. On other occasions, ignorance-is-bliss is not a sustainable policy and there is no option other than to attempt the frustrating task of valuation. The theory of practice of transfer pricing is a testimony to the suspicion that the attempt is more often than not an exercise in futility. Property taxes and estate taxes are similarly plagued with problems of valuation. Consider, for instance, the dispute surrounding Michael Jackson’s estate, which the executors valued at about $7 million and the IRS valued at $1.125 billion.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews The Use And Abuse Of Location-Specific Rent By Kane & Kern

This week, David Elkins (Netanya; Google Scholar) reviews Mitchell Kane (NYU) & Adam Kern (NYU), The Use and Abuse of Location-Specific Rent, 76 Tax L. Rev. __ (2023).

The authors of this week’s feature article begin with the premise that an ideal formula for allocating taxing rights among countries would be one that enables them to raise substantial amounts of revenue, allows them to do so efficiently, and assigns rights fairly. The conceptual basis for such an allocation would constitute the holy grail of international taxation. The current system, which relies upon the concepts of residence and source, fail on all three counts. Both residence and source are easily manipulable, distort locational decisions, and are flawed proxies for countries’ contributions to business profits. The proposed alternative of some sort of formulary apportionment has significant drawbacks. If apportionment factors (e.g., employees, assets, and research) are elastic, they would distort locational decisions. Apportioning by sales can be avoided by selling to an unrelated intermediary located in a low-tax jurisdiction. 

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Shaviro's Income Versus Consumption Taxation In 'The Myth of Ownership'

This week, David Elkins (Netanya; Google Scholar) reviews a new paper by Daniel Shaviro (NYU, Google Scholar), Ancillary Benefits and Income Versus Consumption Taxation in Liam Murphy’s and Thomas Nagel’s 'The Myth of Ownership':

The question of whether income or consumption is a more appropriate tax base has occupied a prominent place in the tax policy discourse since about the 1970s. Although deliberated in the literature for centuries — the names Hobbes, Smith, Mill, Fisher, and Kaldor come to mind — it appears to have been William Andrews’ 1974 Harvard Law Review article, A Consumption-Type or Cash Flow Personal Income Tax, that brought the issue to the attention of tax academics and policymakers. That article, which may also be credited with having introduced the Cary Brown theorem into the legal academic discourse, triggered debate concerning the proper tax base and analysis of the extent to which the current income tax actually does tax income. It may also have indirectly sparked the call in some political quarters to replace the income tax with a consumption tax.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews International Response To The U.S. Tax Haven By Noked & Marcone

This week, David Elkins (Netanya, visiting NYU 2021-2023; Google Scholar) reviews Noam Noked (Chinese University of Hong Kong (CUHK); Google Scholar) & Zachary Marcone (CUHK), International Response to the U.S. Tax Haven, 48 Yale J. Int’l L. ___ (2022):

The term “tax haven” tends to evoke images of sparsely populated Caribbean islands with pristine beaches and whose most important industry is the registration of corporations. Alternatively, it may bring to mind countries such as Switzerland or Luxembourg, whose banking laws have traditionally provided for strict secrecy, enabling wealthy individuals to shield their capital and income from the prying eyes of their home countries’ tax authorities.

Wherever they may be and whatever function they serve, tax havens have been the subject of intense scrutiny and criticism in recent years. The United States has been particularly active in this regard. One of the primary tools in its arsenal is the Foreign Account Tax Compliance Act (FATCA) that prohibits foreign financial institutions from aiding and abetting tax evasion by U.S. persons. Foreign financial institutions that run afoul of these regulations are subject to stiff penalties (even, it may be noted, when abiding by the regulations would constitute a violation of local law).

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Oxford Business Tax Policy Brief On Pillar 2

This week, David Elkins (Netanya, visiting NYU 2021-2022; Google Scholar) reviews a new paper by Michael P. Devreux (Oxford; Google Scholar), John Vella (Oxford) & Heydon Wardell-Burrus (Oxford), Pillar 2: Rule Order, Incentives, and Tax Competition (2022).

International taxation is undergoing a transformation the likes of which have not been seen for a century, responding to challenges of globalization and digitalization that the current international tax regime is ill-equipped to handle. Twenty-five years have passed since the OECD shot the first arrow across the bow, twenty-five years during which the discourse has expanded to include over 140 countries in the Inclusive Framework and the goals of the project have been constantly evolving. Whether and to what extent the transformation will come to fruition and, if it does, will survive the test of time is a matter of speculation.

The latest iteration on the subject is the Pillar Two Global Minimum Tax Model Rules released on December 22, 2021. In this week’s feature article, three scholars from the Oxford University Centre for Business Taxation examine how the Model Rules deal with two of the more controversial questions relating to Pillar Two: the extent to which it will allow countries to engage in tax competition, and which countries will collect the tax revenue that it generates. 

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Infanti's Tax And Time: On The Use And Misuse Of Legal Imagination

This week David Elkins (Netanya, visiting NYU 2021-2022; Google Scholar) reviews a new paper by Anthony C. Infanti (Pittsburgh; Google Scholar), Tax and Time: On the Use and Misuse of Legal Imagination (NYU Press 2022). 

Time is one of the more perplexing phenomena of the universe. Astrophysicists distinguish between what they call “real time” (time as we experience it, as a series of continuous moments moving from the past to the future) and “imaginary time” (time as viewed from outside the time-space continuum, as a unitary whole with past, present, and future existing simultaneously). However, lest we misinterpret the terms, real time is not more real than imaginary time, and imaginary time is not more imaginary than real time. The terms “real” and “imaginary” simply refer to the real and imaginary axes in Cartesian complex number coordinates. In fact, in ordinary language, it is probably more accurate to describe imaginary time as “real” (an objective portrayal of the universe) and real time as “imaginary” (our psychological perception of the flow of time). One example of the complexities that arise in this field is the conundrum of the arrow of time: Why do we remember the past, but not the future? Why do we experience time as always flowing in one direction? The arrow of time has intrigued philosophers also. Why is the knowledge that I am to experience future pleasure preferable to the knowledge that I experienced past pleasure? Why is knowledge that I am to experience future pain more disconcerting than the knowledge than I experienced pain in the past?

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Hasen's Debt And Taxes

This week, David Elkins (Netanya, visiting NYU 2021-2022) reviews a new paper by David Hasen (Florida; Google Scholar), Debt and Taxes, 12 Columbia J. Tax L. 89 (2021).

As indicated by its whimsical title, David Hasen’s well-written paper considers the tax treatment of debt. Under the standard view, in exchange for the loan proceeds, the borrower commits to paying the lender interest and, eventually, repaying the loan proceeds. Because of the obligation to repay, the borrower does not report income on receipt of the loan proceeds. The idea is that income is accession to wealth, and wealth, in turn, is assets minus obligations. Increasing one’s assets (i.e., the cash received) and one’s liabilities by the same amount does not cause any change to one’s wealth. Similarly, for the lender, the cash is replaced by the borrower’s obligation. Thus, while the composition of the lender’s assets undergoes a transformation, the value of the assets remains the same and the lender cannot deduct the loan proceeds.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Glogower's Comparing Capital Income And Wealth Taxes

This week, David Elkins (Netanya, visiting NYU 2021-2022) reviews a new article by Ari Glogower (Ohio State; Google Scholar), Comparing Capital Income and Wealth Taxes, 48 Pepp. L. Rev. 875 (2021):

In this week’s article, Professor Glogower examines two proposals to reform the current tax system and improve progressivity. The first is a reformed capital income tax that would tax unrealized appreciation. The second is a wealth tax, under which individuals each year would pay a percentage of their net wealth. He evaluates these two proposals by considering their economic effects, administrability and avoidance opportunities, and constitutionality.

The author notes that if all capital produced a similar rate of return, then a reformed capital income tax and a wealth tax would be functionally equivalent: given a fixed return of x%, a y% income tax would be the same as an (x*y)% wealth tax. It is only because capital does not produce a fixed rate of return that the equivalence breaks down: relative to a reformed capital tax, a wealth tax would over-burden lower-yielding assets and would under-burden higher-yielding assets. Thus, in the real world, the normative question becomes: are we seeking to mitigate inequality of wealth or inequality of income? The former would best be served by a wealth tax, while the latter would best be served by a reformed income tax.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Monetary Finance By Galle And Listokin

This week, David Elkins (Netanya) reviews a new article by Brian Galle (Georgetown; Google Scholar) & Yair Listokin (Yale; Google Scholar), Monetary Finance (2021):

Governments need (or want) to spend money. Perhaps the most obvious and time-honored means to finance that spending is via taxation. However, when the government concerned is a sovereign entity with the power to print currency, the question arises as to why it should resort to taxation at all. Why not simply print (or otherwise create ex nihilo) the money that it needs? The traditional response is that printing money leads to inflation, which is itself a form of taxation. It effectively redistributes from those who are least able to protect themselves from rising prices (e.g., retirees living on fixed income or employees without sufficient bargaining power to demand cost-of-living wage adjustments) to those who are able to protect themselves from rising prices and perhaps even to benefit from it. Furthermore, high inflation carries with it severe economic and political risks (Europe’s experience with hyper-inflation in the twentieth century is one reason why the mandate of the European Central Bank emphasizes price stability above all other goals).

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews The Psychology Of Taxing Capital Income By Liscow & Fox

This week, David Elkins (Netanya) reviews a new article by Zachary Liscow & Edward Fox, The Psychology of Taxing Capital Income: Evidence from a Survey Experiment on the Realization Rule (2021):

As a rule, unrealized gain is not recognized as income for tax purposes. It is only when the appreciated property is sold that the gain is subject to tax. Tax scholars agree that the only impediments to taxing unrealized income are valuation and liquidity: the market value of a particular asset may be difficult to determine and the taxpayer may not have the necessary cash. The sale of the property – and specifically the sale of the property in a cash transaction – removes these two obstacles: the tax administration does not need to engage in speculative valuation and the taxpayer presumably has the wherewithal to pay the tax. Nevertheless, the realization doctrine carries considerable cost in terms of both equity and efficiency. It is horizontally inequitable because taxpayers whose accession to wealth takes the form of unrealized gain bear a lower effective burden than similarly situated taxpayers whose income is taxed currently. It is vertically inequitable both because the wealthier segments of society own more assets and because they have a greater ability to defer the realization of the gain. It is economically inefficient because of the lock-in effect: taxpayers who would otherwise want to sell an appreciated may be unwilling to waive the advantage of deferral.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Lucas's The Pain of Paying Taxes

This week, David Elkins (Netanya) reviews a new article by Gary Lucas, Jr. (Texas A&M; Google Scholar), The Pain of Paying Taxes, 56 Richmond L. Rev. __ (2021) (forthcoming):

The financing of government spending (and in particular the financing of transfer payments) by taxation has been analogized in the literature to the carrying of water in a leaky bucket. In many cases, the amount received by the beneficiaries of the spending program will be less than the cost imposed upon the taxpayers. Under standard economic modeling, the sources of the leak include compliance costs, administrative costs, and the substitution effect (which occurs when taxpayers alter their behavior in order to avoid the tax or to minimize their tax liability). In a fascinating article, Professor Lucas argues that the leak may be larger than we thought. Leaving aside Oliver Wendell Holmes’ famous declaration that he does not mind paying taxes because taxes are the cost of a civilized society, people do not like to pay taxes. The psychological pain associated with paying taxes reduces social welfare and can also exaggerate the substitution effect.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Ozai's Inter-Nation Equity Revisited

This week, David Elkins (Netanya) reviews a new article by Ivan Ozai (McGill; Google Scholar), Inter-Nation Equity Revisited, 12 Colum. J. Tax L. 58 (2020):

In 1963, Peggy Brewer Richman introduced the concept of inter-nation equity as a cornerstone for normative analysis of international taxation. In 1972, she (now Peggy Musgrave) and her husband Richard Musgrave fleshed out the idea. Their argument was that the international tax base should be allocated in such a way as to recognize the entitlement of countries to tax the income arising in their territories and to allow for some degree of international redistribution.

Since that time, the literature has transformed the term “inter-nation equity” into a catch-all term devoid of any substantive meaning. It is often used simply to denote the vague concept of fairness. Commentators have employed it in ways that denote different and sometimes even contradictory conceptions of the idea. In this week’s article, Ivan Ozai examines the original meaning of the term as envisioned by the Musgraves and proposes a number of measures that might be adopted to promote those ideas.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Tax Policy And Pharmaceutical Innovation By Eyal-Cohen & Rutschman

This week, David Elkins (Netanya) reviews a recently posted work by Mirit Eyal-Cohen (Alabama) & Ana Santos Rutschman (St. Louis), Tax Policy and Pharmaceutical Innovation (2020):

With so much of the world’s attention this year focused on the COVID-19 pandemic, it is little wonder that tax scholars too have waded into the breach. A quick search on SSRN turns up no less than 146 articles containing the key words “COVID” and “tax.” However, most of these articles are concerned either with the tax implications of the current pandemic or with what the government should do within the field of taxation in light of the economic havoc created by the virus and by the shutdowns and other measures instituted in an attempt to keep it at bay. This week’s article, co-authored by a tax law scholar and a public health law scholar, takes a step back and asks how the tax system can help prevent the next pandemic.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Duff's General Anti-Avoidance Rules Revisited

This week, David Elkins (Netanya) reviews a recently posted work by David G. Duff (British Columbia), General Anti-Avoidance Rules Revisited, 68 Can. Tax. J. 579 (2020):

It is no secret that tax legislation is extraordinary complex. Part of the reason is the subject matter itself. Economic reality and legal doctrines do not necessarily coincide, and when they do not then taxpayers frequently can exploit the mismatch to achieve beneficial tax results. One of the swords that administrators wield to combat this phenomenon is the general anti-avoidance rule (GAAR). The question of the limits to which taxpayers may go to lower their tax liability was originally – at least in common law countries – a product of judicial doctrine. Today many countries have codified the rule or at least certain key elements of it (the closest the United States has to a statutory GAAR is IRC §7701(o), which clarifies the judicial economic substance doctrine). However, whether codified or not, GAARs by their nature are problematic. They call upon the courts to ignore the express words of the statute to prevent tax avoidance. However, one would have to be extraordinarily naïve to believe that taxpayers do not routinely structure their affairs in response to tax rules. Thus the question of when it is legitimate to invoke a GAAR is not a simple one.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews McCaffery's The Property-Tax Bundle Of Rights

This week, David Elkins (Netanya) reviews a recently posted work by Edward J. McCaffery (USC), The Property-Tax Bundle of Rights:

In a highly ambitious and extremely well-written article, Prof. McCaffery takes us on a fascinating journey through the concept of property in law and legal thought from Ancient Rome to the present day. He argues that the modern conception of property rights as embodying complete dominion over a thing, including the right to destroy it, is a nineteenth century aberration that stands in stark contradiction to the seventeenth and eighteenth century liberal tradition. He focuses particular attention on John Locke, the titular godfather of private property. Many have noted that Lockean property rights are considerably more limited than is often claimed, as Locke expressly conditioned an individual’s exclusive rights in what had originally been the common property of all humankind on one leaving for others “enough, and as good” as one takes for oneself. McCaffery takes a more unusual approach. He points out that according to Locke, once one has acquired exclusive rights in a thing, one is obligated to preserve that thing for the good of the community as a whole. Allowing one’s “own” fruit to rot is impermissible and punishable. 

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Dagan's Re-Imagining Tax Justice In A Globalized World

This week, David Elkins (Netanya) reviews a recently posted work by Tsilly Dagan (Oxford, Bar-Ilan), Re-imagining Tax Justice in a Globalized World (2020):

In recent years, international taxation has moved to front and center stage. Once considered one of the more esoteric aspects of taxation, of interest to a few specialists and their clients, the field of international tax has drawn the attention of academics, politicians, the popular press, and international organizations. However, more often than not, those engaged in the discourse rely upon unexamined postulates and rehashed mantras that do little either to identify or to solve the serious challenges of taxation in a globalized world.

Tsilly Dagan is one of the rare breed of scholars who refuses to accept the conventional wisdom of international taxation and prefers to subject some of the field’s most well-entrenched principles to undogmatic scrutiny. In her current paper, she considers some of the challenges faced by countries in designing their tax policy, given the fact that taxpayers are no longer a captive audience over whom the sovereign state has virtually unlimited powers of coercion, but can freely choose where to reside and thus to which country’s tax regime to subject themselves.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Cauble's Time For A Tax Return Filing Fee

This week, David Elkins (Netanya, visiting Cornell spring 2020) reviews a recently posted work by Emily Cauble (DePaul), Time for a Tax Return Filing Fee, 57 Harv. J. on Legis. ___ (2020):

Not all tax returns are created equal. They vary with regard to their complexity and, consequently, with regard to the amount of time that the IRS needs to devote to them on audit. In this week’s article, Professor Emily Cauble proposes imposing upon filers a fee that would reflect the complexity of the transactions reported. She argues that such a fee would make the system fairer, would raise revenue to cover the cost of auditing the return, and would improve efficiency by encouraging taxpayers to take into account the cost imposed on the tax administration by their complex transactions. Her proposal includes a carve-out for difficult-to-audit items, such as the EITC, that are disproportionately claimed by lower-income individual.

The proposal is intriguing and I freely admit that despite having gone over it several times, I am little closer to forming a definitive position. In this review, I will take the liberty of expressing some of my reservations. I will state at the outset that they are nothing other than starting points for a discussion about it.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Newman's Sales And Donations Of Self-Created Art, Literature, And Music

This week, David Elkins (Netanya, visiting Cornell Spring 2020) ) reviews a recently posted work by Joel S. Newman (Wake Forest), Sales and Donations of Self-Created Art, Literature, and Music, 12 Pitt. Tax. Rev. 57 (2015):

I have always enjoyed the writings of Professor Joel Newman. He combines insightful analysis with a touch of humor that is distinctive in the tax discourse. In the article reviewed here, Professor Newman discussed the tax treatment of sales and donations of self-created art, literature and music.

The first part of the article concerns sales. In 1948, General Dwight D. Eisenhower sold his memoirs. As he was a general and not a professional writer, the sale of those memoirs received capital gains treatment. In response, Congress enacted what is now §1221(a)(3), which provides that the term capital asset does not include “a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by a taxpayer whose personal efforts created such property.” Thus, the sale of memoirs by a future general would produce ordinary income. In 2005 Congress made an exception to the general rule (pun intended) and granted songwriters capital gains treatment on the sale of copyright to their works.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Listokin's Posner on Tax: The Independent Investor Test

This week, David Elkins (Netanya) reviews a new work by Yair Listokin (Yale), Posner on Tax: The Independent Investor Test, 86 U. Chi. L. Rev. 1159 (2019):

Richard Posner is one of the most influential legal scholars of recent generations. He is perhaps best known as a leading figure in the school of Law and Economics. Complimenting his academic work, he served as a judge on the Seventh Circuit Court of Appeals for 36 years before retiring in 2017. In the field of taxation, one of his more memorable decisions was Exacto Springs Corp. v. Commissioner, 196 F3d 833 (7th Cir. 1999), which concerns the characterization of payments from closely held corporations to individuals who are both shareholders and employees: is the payment properly classified as a salary or as a distribution?

The question of how to characterize payments to shareholders arises whenever shareholders provide services or sell property to the corporation that they control. If a shareholder leases property to a corporation, is the payment that the parties describe as rent truly rent or is it only partly rent and partly a distribution? The issue of classification is particularly significant in the field of international taxation. For example, if a corporation operating in Country A pays what it describes as a royalty to a parent (or otherwise related) corporation in Country B, is the payment actually a deductible royalty or is it a nondeductible distribution? The answer to that question may determine whether Country A can collect tax from the economic activity in its territory.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Cooper's The State Death Tax Credit And The SALT Deduction

This week, David Elkins (Netanya) reviews Jeffrey A. Cooper (Quinnipiac), Red States, Blue States: Lessons from the State Death Tax Credit and the “SALT” Deduction, 73 Tax Law. __ (2020) (forthcoming).

One of the more politically contentious provisions of the 2017 Tax Cuts and Jobs Act is the capping of the deduction for state and local taxes (SALT) at $10,000 per married couple. Opponents of the change have argued that it was designed to punish those states that voted for Hillary Clinton in the 2016 presidential elections. In an attempt to reverse the legislation, the leaders of four of these states have sued the federal government. Proponents claim that the cap is necessary to prevent high-tax states from imposing the costs of their expensive programs on the federal government and, indirectly, on residents of low-tax states.

In a timely article, Professor Cooper places the issue in historical context by comparing the SALT deduction to the federal estate tax state death tax credit that was established in 1924 and repealed in 2001. He posits that viewing the 2017 legislation within the broader historical context reveals trends and patterns, providing greater insight than would a study of the SALT deduction in isolation. He considers not only the rhetoric surrounding the various legislative changes but also how states responded to the adoption and then to the repeat of the state death tax credit and examines whether such behavior might be a harbinger of state reaction to the SALT deduction cap.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Kysar's Unraveling The Tax Treaty

This week, David Elkins (Netanya) reviews Rebecca M. Kysar (Fordham), Unraveling the Tax Treaty, 103 Minn. L. Rev. __ (2019).

Tax treaties are a ubiquitous feature in the landscape of international taxation, with several thousand bilateral instruments operating to regulate the taxing power of their signatories. However, in recent years, scholars have begun to challenge the century-old principles underlying the tax treaty. Some of these challenges concern the capacity of an institution formed in the aftermath of the First World War to handle our digital and much more globalized economy. Other challenges concern the role of the tax treaty in protecting the interests of wealthier countries.

The bulk of Professor Rebecca Kysar’s essay is dedicated to a critical examination of the tax treaty, as currently constituted. Tax treaties have been justified as tools for preventing double taxation, combatting tax evasion, inhibiting double non-taxation, encouraging foreign direct investment, respecting comity, providing certainty and predictability, institutionalizing non-discrimination, and binding governments to follow good tax policy even when confronted with the demands of political expediency. Professor Kysar addresses each of these issues in turn. 

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Avi-Yonah's Does Customary International Tax Law Exist?

This week, David Elkins (Netanya) reviews a book chapter by Reuven S. Avi-Yonah (Michigan), Does Customary International Tax Law Exist.

Customary international law provides that when countries habitually adhere to certain norms because of a belief that customary international law requires them to do so, then those norms constitute binding international law. Note that the fact that countries adhere to certain norms is not sufficient to establish the existence of an international obligation. For a usage to become a custom, it must be shown not only that countries habitually act (or refrain from acting) in a certain manner, but that they do so because of their belief that they are so obliged under international customary law. Once a custom has been established, it is binding upon all countries, including countries that did not take part in creating it and countries that did not even exist when the customary norm was established.

The other source of international obligations is conventional international law, which provides that countries are bound by the term of treaties to which they are signatories. On occasion, customary and conventional international law overlap. 

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Knoll's The TCJA And The Questionable Incentive to Incorporate

This week, David Elkins (Netanya) reviews a two-part work by Michael S. Knoll (Pennsylvania), The TCJA and the Questionable Incentive to Incorporate, 162 Tax Notes 977 (Mar. 4, 2019), and The TCJA and the Questionable Incentive to Incorporate, Part 2, 162 Tax Notes 1447 (Mar. 25, 2019).

The Tax Cuts and Jobs Act (TCJA) is the most far-reaching tax reform in a generation. The political, and often the academic, discourse regarding the TCJA has tended to focus on the distributional effect of the reform – who gains and who loses from the changes instituted by the act. However, one particular aspect of the TCJA that been largely ignored by the popular press – indeed by most except those who are responsible for advising clients how to arrange their tax affairs – is the seismic shift in the corporation tax regime.

Until the turn of the twenty-first century, U.S. corporate taxation was based upon what is commonly referred to as either the “classic model” or the “double taxation model,” under which corporations pay tax at full rates on their income as it accrues and shareholders pay tax at full rates on dividends when they receive them. The problem with the classic model is that economically the same income is taxed twice. For that reason, during the course of the twentieth century, most other countries moved to integrate their corporation tax structure.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Fleischer, Hemel & Leff On A Universal Basic Income

This week, David Elkins (Netanya) reviews new works by Miranda Perry Fleischer (San Diego) & Daniel Hemel (Chicago), The Architecture of Basic Income, 86 U. Chi. L. Rev. ___ (2019) and Benjamin M. Leff (American), EITC for All: A Universal Basic Income Compromise Proposal, 25 Wash. & Lee J. Rts. & Soc. Just. __ (2019):

This week saw the posting of two articles discussing the concept of universal basic income (“UBI”). It is interesting to compare and contrast two proposals for what is likely to be a focus of academic and political attention in the near future.

At the most fundamental level, the two articles take different tacks by their choice of how conceptually to integrate UBI into the current tax framework. Fleischer and Hemel compare UBI to a negative income tax. They demonstrate it that the difference between them is merely one of framing: a UBI financed by a progressive income is functionally equivalent to a negative income tax. One significant difference is that the negative income tax – like the positive income tax – is calculated on the family level, whereas UBI is calculated on the individual level. Fleischer and Hemel argue that a cash grant to each citizen and lawful permanent resident, regardless of age, would better serve the goals of reducing poverty that would a payment to families.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews The Global Battle to Capture MNE Profits By Bankman, Kane & Sykes

This week, David Elkins (Netanya) reviews a new paper by Joseph Bankman (Stanford), Mitchell Kane (NYU) & Alan Sykes (Stanford), Collecting the Rent: The Global Battle to Capture MNE Profits, 72 Tax L. Rev. __ (2019): 

This article focuses on the concept of economic rent within the context of the taxation and regulation of multinational enterprises (MNEs). Rent is the income above and beyond what is necessary in order to induce an individual or firm to engage in any particular economic activity. For marginal producers, the rent will be zero. Infra-marginal producers will recognize varying degrees of rent. One consequence of the concept of economic rent is that a tax or regulatory scheme that extracts some or even all of that rent will not likely affect a firm’s behavior. In contrast, a tax or regulatory scheme that extracts more than rent will likely induce a change in behavior.

In describing rent, the authors distinguish between true economic rent and quasi-rent. Assume that there is a firm that has already incurred a large economic outlay in order to establish a production line, develop intellectual property and so forth. The difference between its income and its current costs is quasi-rent. However, to determine its true economic rent, we would also need to factor in its initial economic outlay. The difference is significant because a tax or regulatory scheme that extracts quasi-rents may not change the firm’s immediate behavior, but will affect future investment. Therefore, taxing quasi-rents is not sustainable on a long-time basis.

 

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