Lesson From The Tax Court: The Finality Rule For §7430 Qualified Offers

When you litigate against the IRS you may win but not prevail.  That is, even though §7430(a) promises that a “prevailing party” can recover costs and attorneys fees, it’s hard to be a "prevailing party" within the meaning of the statute.  If the government's ultimately losing position was substantially justified at the relevant time, the winning taxpayer won't be a prevailing party.  Sometimes that leads to a seemingly strange result that even if the Office of Appeals badly messes up, the taxpayer will not be a prevailing party if Chief Counsel catches the error and promptly concedes.  Keith Fogg blogged a good example of this over at Procedurally Taxing last week.

The Qualified Offer process is a substitute for being a prevailing party.  Making a properly qualified offer to settle a case removes the government's "substantially justified" defense.  Thus, if you make the offer during the administrative process, you can set up a recovery even if Chief Counsel concedes.

But making a effective Qualified Offer has its own difficulties.  Today’s lesson looks at one of the key rules for making a qualified offer: the finality rule.  In Gina C. Lewis v. Commissioner, 158 T.C. No. 3 (Mar. 3, 2022) (Judge Pugh), the taxpayer offered to settle an audit of her joint return by agreeing to 100% of a proposed deficiency.  But on a closer examination, she really just crossed her fingers, reserving the right to contest that liability through the §6015 spousal relief provisions at some unspecified later date.  So it was not really an offer to settle.  It was an offer to kick the can down the road.  Indeed, many years later, in Tax Court, the IRS agreed she was entitled to full relief under §6015(c).  Ms. Lewis then asked for costs and fees under §7430 on the grounds that the IRS had ended up worse off than if it had accepted her offer.  The Tax Court said no, for reasons discussed below the fold.

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Organ: A Data-Based Counternarrative To 'The Big Lie'

Prologue
Twelve months ago, on December 29, 2020, I posted a blog analyzing voting patterns in Congressional Districts in five of the six swing states that former President Trump lost.  The analysis demonstrated that Trump lost largely because significant numbers of voters who voted for Republican Congressional candidates in those five states did not vote for Trump.

I published that blog hoping to provide a data-based argument to put to rest some of the unfounded assertions about election fraud that have become known as “the big lie.”  Little did I think at the time, that “the big lie” would continue to be believed by a not insignificant percentage of our electorate a year later.  But several days after my blog posting, on January 6, 2021, then-President Trump, trumpeting “the big lie,” instigated some of his followers to storm the Capitol in an unsuccessful effort to stop Congressional validation of the Electoral College tally affirming President Biden as the lawfully elected President of the United States.

The former President has spent the better part of the last year refusing to recognize the validity of the November 2020 presidential election and continuing to assert “the big lie” — that the only way he could have lost the election was if there was ballot-rigging or some type of election fraud in all six of the swing states that he lost to President Biden — Arizona, Georgia, Michigan, Nevada, Pennsylvania and Wisconsin.  (But only ballot-rigging or election fraud with respect to the Presidential election.  No claims have ever been made that ballot-rigging or election fraud tarnished any of the other elections in the six swing states Trump lost on November 3, 2020.)

As indicated in my blog posting of December 29, 2020, an alternative explanation for Trump’s loss, an explanation that the former President does not or perhaps literally cannot acknowledge, is that large numbers of voters who voted for Republican Congressional candidates made a decision not to vote for him and instead to vote for President Biden or some other Presidential candidate.  Perhaps these Republican voters had finally found Trump's boorish behavior to be too much, or perhaps they were sufficiently concerned about his disregard for the rule of law, or perhaps they had concluded that he had grossly mismanaged the Covid-19 pandemic, or perhaps they had grown weary of his continuous efforts to polarize our society rather than work to bring people together, or perhaps some combination of these factors.

While I recognize that my effort to provide another data-based argument to put to rest “the big lie” is unlikely to be acknowledged by those who continue to believe “the big lie,” I feel compelled, as we recognize the first anniversary of the January 6 insurrection, to present once again a data-based counternarrative.

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At Yale Law School, A Party Invitation Ignites A Firestorm

Update:

• Kathleen Parker (Washington Post), Yale Law School Triggers Me (Oct. 16, 2021)
• David Lat, Yale Law Student Who Sent 'Trap House' Email Faces Removal As 2L Rep (Oct. 18, 2021)
• Andrew Koppelman (Northwestern), Yale Law School’s Bullying, Coercive Diversity Leaders (Oct. 19, 2021)
• Yale Daily News, Racism, Conservatism And Free Speech At Yale Law School (Oct. 20, 2021)
• Eugene Volokh (UCLA), Lawyers, Law Students, Law School Administrators, And Language (Oct. 22, 2021)
• The Atlantic, A Worrisome Peek Inside Yale Law’s Diversity Bureaucracy (Oct. 23, 2021)
• Washington Free Beacon, Backlash Against Media Coverage Of The Yale Law School 'Trap House' Email (Oct. 25, 2021)
• Trent Colbert (Yale 2L), Why I Didn’t Apologize For That Yale Law School Email: 'We Must End The Culture Of Performative Repentance' (Oct. 26, 2021)
• Peter Berkowitz (J.D. 1990, Yale; Senior Fellow, Hoover Institution), An Open Letter To Yale Law School Dean Heather Gerken (Nov. 1, 2021)
• David Lat, The Newest Insanity Out Of Yale Law School (Nov. 4, 2021)
• Simon Lazarus (J.D. 1967, Yale), Where Yale Law School Has Gone Off The Rails, And What Is Needed To Get Back On Track (Nov. 13, 2021)
• David Lat, Yale Law School And The Federalist Society: Caught In A Bad Romance? (Nov. 15, 2021)
• Washington Free Beacon, Yale's Akhil Amar Calls Law School Administration's Handling Of 'Trap House' Email Controversy 'Dishonest, Duplicitous, And Downright Deplorable' (Nov. 16, 2021)
• David Lat & Eugene Volokh (UCLA), More On The Two Yale Law School Controversies (Nov. 17, 2021)
• Washington Free Beacon & Josh Blackman (South Texas),  Yale Law School Dean Heather Gerken Admits Error, Stops Short Of Apologizing To Targeted Students; Law Prof Calls For Conservative Yale 1Ls To Transfer (Nov. 18, 2021)

Ruth Marcus (Washington Post), At Yale Law School, a Party Invitation Ignites a Firestorm:

Maoist reeducation camps have nothing on Yale Law School. If you think this is an exaggeration, okay, it is, but keep reading.

Last month, a second-year law student sent some classmates an invitation to a party — to celebrate Constitution Day, of all things.

The student, Trent Colbert, who has the unusual profile of belonging to both the Native American Law Students Association (NALSA) and the conservative Federalist Society, emailed: “Sup NALSA, Hope you’re all still feeling social! This Friday at 7:30, we will be christening our very own (soon to be) world-renowned NALSA Trap House . . . by throwing a Constitution Day bash in collaboration with FedSoc. Planned attractions include Popeye’s chicken, basic-bitch-American-themed snacks (like apple pie, etc.) . . . Hope to see you all there.”

“Trap House,” according to the Urban Dictionary, was “originally used to describe a crack house in a shady neighborhood,” but “has since been abused by high school students who like to pretend they’re cool by drinking their mom’s beer together.” A popular far-left podcast, by three White men, calls itself Chapo Trap House, without incident.

Not at Yale Law School. Within minutes, as reported by Aaron Sibarium of the Washington Free Beacon, the invitation was posted on the group chat for all 2Ls, or second-year law students, of which several asserted that the invite had racist connotations, and had encouraged students to attend in blackface. ...

But what erupted on the group chat didn’t stay on the group chat. All too typically, the issue was escalated to authorities and reinforced by the administrative architecture of diversity and grievance. And that’s when things went off the rails.

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AALS: Banning Critical Race Theory Is Censorship

Karen Sloan (Reuters), Law School Association: Banning Critical Race Theory Is Censorship:

Laws that ban the teaching of critical race theory in schools are setting a “dangerous precedent” by turning the government into an arbiter of ideas, according to the nation’s largest organization of legal educators.

The Association of American Law Schools (AALS) this week took the unusual step of issuing a public statement in defense of critical race theory and the rights of educators to decide if and how it should be taught.

“The efforts to ban critical theories, just like other attempts at censorship, undermine one of the primary purposes of education: teaching students how to think for themselves,” reads the AALS statement.

The organization also condemned personal attacks on legal academics whose scholarship centers on critical race theory, which is centered on the idea that racism and prejudice is embedded within legal and other societal systems. AALS executive director Judith Areen said Wednesday that she has spoken with one law professor, whom she declined to name, who had to stop answering her personal phone because she was receiving so many hateful calls.

“She had to get a different number,” Areen said. “It’s a shame that we’re in a time where disagreements about ideas are personalized.” ...

Statement by AALS on Efforts to Ban the Use or Teaching of Critical Race Theory:

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Organ: Comparing Congressional Election Results With Presidential Election Results In Key Swing States

In trying to understand how statistics might inform one’s understanding of claims of electoral fraud and inform our understanding of how President Trump lost the election in key swing states, I have looked at the comparisons of voting within Congressional districts.  Congressional districts provide an interesting framework because each Congressional district conceptually represents a comparable population of people, although both voter registration and voter turnout will vary across Congressional districts.

The Congressional results are from the CNN webpage.

The Presidential results are from the Daily KOS webpage.

This analysis proceeds in two parts.  First, it looks at the overall distribution of votes across Congressional districts in key swing states to see if there are aberrational patterns worth noting.  None were found. Second, it looks at results on a state-by-state basis to see what the state results can tell us about why President Trump lost and President-Elect Biden won in these states.  There appears to be one key lesson from these state-by-state analyses.  To the extent that there is a common theme across states, the theme appears to be that President Trump lost because he did not perform as well as Republican Congressional candidates in districts in which Republican Congressional candidates won in these states.  Phrased differently, people who voted for Republican Congressional candidates failed to vote for President Trump in the same numbers as they voted for Republican Congressional candidates – resulting in President Trump’s loss to President-Elect Biden in at least three of these swing states. 

Please note that because this blog post includes detailed analysis of the comparison of Congressional and Presidential results in five of the swing states -- Arizona, Georgia, Michigan, Nevada and Wisconsin -- it is a fairly long post.

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Death Of Jeff Sherman (Chicago-Kent)

In Memoriam: Professor Jeffrey G. Sherman:

The Chicago-Kent College of Law community mourns the death of Professor of Law Emeritus Jeffrey G. Sherman, a one-of-a-kind professor who served as an institutional conscience to the law school for 32 years. He passed away recently at the age of 72.

“Jeff Sherman was a gifted teacher, a fabulous colleague and a zealous defender of the integrity of the English language,” says Chicago-Kent Dean Harold J. Krent.

Sherman joined the Chicago-Kent faculty as an associate professor in fall 1978. Over the years, he taught the courses in Estates and Trusts, Gift and Estate Tax, and Employee Benefits Law. Prior to joining the law school, he was an assistant professor of law at the University of Illinois at Urbana-Champaign from 1976 to 1978. He also was a visiting professor at Harvard in 1993 and 1995 and also visited at University of California Los Angeles in 1990, the University of Miami in 1987, the University of Illinois in 1983, and the University of Arizona in 1981.

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ABA Webinar On The Government Shutdown: Monday 1:00 PM EST

As the IRS and Tax Court reopen (at least for about three weeks), readers might be interested in resources to help them.  The IRS has published a short announcement that answers some basic questions, here.   In addition, the ABA Tax Section is hosting a webinar on the effects of the shutdown on administrative operations and on Tax Court cases. The 1.5 hour webinar is scheduled for Monday, January 28, 2019 starting at 1:00 pm EST.  The cost is $10 for Tax Section members and $25 for non-members.  It is free to Low Income Tax Clinic or other pro-bono attorneys.  

 Topics will include:

• How the shutdown affected the Service’s issuance of notices;
• The ways taxpayers and representatives should consider reacting and responding to Service correspondence;
• The impact of the shutdown on applications for discretionary relief and IRS administrative services; 
• The Service’s current collection efforts; and
• The impact on filings with the United States Tax Court.

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Lesson From The Shutdown: Court Budgets

The partial government shutdown has affected different courts differently.  Readers likely know that the Tax Court closed December 28th but still held trial calendars the week of January 14.  For a while the Court said that later calendars would also go forward but as the shutdown wore on the Court wore down: it has now cancelled the trial calendars for January 21, 28, and February 4th and 11th.  The Court issued its last pre-shutdown opinion on December 27th.  It has since continued issuing orders as needed for pending cases but has issued no opinions or designated orders.  

In contrast to the Tax Court, all other federal courts remained open.  The Administrative Office of the U.S. Courts (AO) administers the federal judicial branch, both the Article III judges and their Article I adjuncts, such as magistrates and bankruptcy judges.   It has made several announcements on its website about those courts' operation during the shutdown.  The current announcement says those courts will remain open through January 25th.  In addition, the other Article I courts have remained open: (1) the Court of Appeals for the Armed Forces; (2) the Court of Appeals for Veterans Claims; and (3) the Court of Federal Claims; and (4) the Court of International Trade. 

I was curious, particularly about why the Tax Court was closed when the other Article I courts remained open.  It turns out the reason has to do with funding.  It is not intuitive.  I share my results below the fold.  As usual, I invite those with deeper knowledge to help out by using the comment function to correct any error or to give further explanation. 

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Internal GOP Poll: 'We've Lost The Messaging Battle' On Tax Cuts

Bloomberg, Internal GOP Poll: 'We've Lost the Messaging Battle' on Tax Cuts:

A survey commissioned by the Republican National Committee has led the party to a glum conclusion regarding President Donald Trump’s signature legislative achievement: Voters overwhelmingly believe his tax overhaul helps the wealthy instead of average Americans.

By a 2-to-1 margin -- 61 percent to 30 percent -- respondents said the law benefits “large corporations and rich Americans” over “middle class families,” according to the survey, which was completed on Sept. 2 by the GOP firm Public Opinion Strategies and obtained by Bloomberg News.

The result was fueled by self-identified independent voters who said by a 36-point margin that large corporations and rich Americans benefit more from the tax law -- a result that was even more lopsided among Democrats. Republican voters said by a 38-point margin that the middle class benefits more. ...

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Wax Does Not Wane

A colleague of mine here at Tech Law, Dwight McDonald, only recently found out about the Amy Wax controversy at U. Penn. when he read this editorial by Walter Williams, a professor at George Mason Law School. It was published in our local paper on July 4th.  Dwight was inspired to write a response in a letter to our paper.

In his editorial, Mr. Williams supports Ms. Wax’s claims and says: “The fact that black students have low class rankings at such high-powered law schools as Penn doesn't mean that they are stupid or uneducable. It means that they've been admitted to schools where they are in over their heads."

In Dwight's pithy response, he points out some weaknesses in Williams' claims, and also a curious contradiction among some of those who take Mr. William’s position.  You can read it below the fold.

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Ring: The Stages Of International Tax Reform

Diane Ring (Boston College), The Stages of International Tax Reform:

Since December 2017, tax conferences in the United States have focused substantially on the H.R. 1 tax reform legislation. No surprise there — the 2017 changes are among the most significant in the past thirty years. But over the past five months, through attending numerous tax conferences featuring international tax practitioners, I’ve observed some interesting developments in the nature of the discussions and debates at these conferences. These changes are pretty revealing about the process of absorbing the true impact of the new tax law, particularly in international tax. This weekend’s ABA May Tax Section Meeting in Washington, D.C. highlighted some of these trends.

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NHL Stunner: 36-Year-Old Accountant Who Has Never Played Pro Stars In Blackhawks Win

Washington Post: NHL Stunner: A 36-year-old Accountant Who has Never Played Pro Stars in Blackhawks Win:

On Thursday night in the middle of a National Hockey League game between the Chicago Blackhawks and the Winnipeg Jets, an unfamiliar figure in a No. 90 Blackhawks jersey stepped onto the ice at the United Center.

“Hey who’s this guy?” an announcer joked.

That guy was Scott Foster, the team’s emergency goalie, a 36-year-old accountant who hadn’t played in a high stakes hockey game in more than 10 years. He played hockey for Western Michigan University from 2002 to 2005 and plays in an amateur league, albeit a high-level one composed of former college and professional players. His venue most of the time is not the Blackhawk’s United Center, with a capacity of 23,000, but Johnny’s Ice House in Chicago’s elite league.

But Foster has never played in the NHL.

Less than 15 minutes after he took the ice, the Blackhawks came away with a 6-2 victory and Foster emerged a hockey legend, delivering a performance that left everyone who watched it in awe....

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The Effect Of A Government Shutdown On The IRS: Not What You Think

Machines are cheap. Humans are expensive. The IRS depends upon both to administer the fiendishly complex tax code that Congress tirelessly re-scrambles every year. This year is, of course, much, much worse. And everyone seems at least aware that a government shutdown will hurt the IRS’s ability to implement the new law. Here’s a recent WaPo article on the subject.

But the effect of a government shutdown on IRS operations is worse than is being reported.  More below the fold.

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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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National Taxpayer Advocate Blog: Caring About “Sharing” — The IRS Should Do More For Participants In The Gig Economy

NTA Blog, Caring about “Sharing” – The IRS Should Do More for Participants in the Gig Economy:

In this blog post, I will discuss how the IRS has been dealing with a growing sector of our economy called the “sharing” economy (also known as the gig economy). Proponents of the sharing economy believe it promotes marketplace efficiency by enabling individuals to generate revenue from assets while the assets are not being used personally. For example, a vacation home owner may rent out her home while she is not using it. Airbnb (short-term home rentals) and Uber (shared car services) are two of the more prominent companies that facilitate a sharing economy.

Nearly a quarter of the U.S. population earns money from the sharing economy. Although it may be growing at a healthy rate, I want to make clear that not all sharing economy participants are finding it to be a very lucrative endeavor. On the contrary, data show that the vast majority – 85 percent – earn less than $500 per month from their gigs.

Furthermore, many of the service providers are simply unfamiliar with the tax filing and recordkeeping requirements. Service providers in the sharing economy may not fit the mold of the traditional employee who works “9 to 5” and receives a Form W-2 from one employer. Rather, a service provider in the sharing economy may have to take on multiple gigs to help make ends meet, making it difficult to track and allocate expenses among the various gigs. The majority of them do not receive any tax information from the sharing economy platform they use to earn their income. This demonstrates both the need for guidance from the IRS and the opportunity to create a culture of tax compliance among participants in the sharing economy from the outset. Establishing the tax compliance norms for this emerging industry in its infancy will assist the IRS as this segment of taxpayers grows. 

This leads us to the question, “What can the IRS do to help sharing economy participants comply with their tax obligations?” First, when looking at noncompliance, it is important to distinguish between the various types of noncompliance the IRS encounters. Not all noncompliant taxpayers are willfully noncompliant; many of them are tripped up by “unknowing” or “lazy” noncompliance. That is, some taxpayers are simply unaware of their tax compliance obligations. Many sharing-economy entrepreneurs and merchants have never operated a small business and need to understand certain basic tax obligations (i.e., making required quarterly estimated payments throughout the year to avoid penalties).

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NY Times: She Took On Colombia’s Soda Industry. Then She Was Silenced.

New York Times, She Took On Colombia’s Soda Industry. Then She Was Silenced.

BOGOTÁ, Colombia — It began with menacing phone calls, strange malfunctions of the office computers, and men in parked cars photographing the entrance to the small consumer advocacy group’s offices.

Then at dusk one day last December, Dr. Esperanza Cerón, the head of the organization, said she noticed two strange men on motorcycles trailing her Chevy sedan as she headed home from work. She tried to lose them in Bogotá’s rush-hour traffic, but they edged up to her car and pounded on the windows.

“If you don’t keep your mouth shut,” one man shouted, she recalled in a recent interview, “you know what the consequences will be.”

The episode, which Dr. Cerón reported to federal investigators, was reminiscent of the intimidation often used against those who challenged the drug cartels that once dominated Colombia. But the narcotics trade was not the target of Dr. Cerón and her colleagues. Their work had upset a different multibillion-dollar industry: the makers of soda and other sugar-sweetened beverages.

Their organization, Educar Consumidores, was the most visible proponent of a proposed 20 percent tax on sugary drinks that was heading for a vote that month in Colombia’s Legislature. The group had raised money, rallied allies to the cause and produced a provocative television ad that warned consumers how sugar-laden beverages can lead to obesity and diet-related illnesses like diabetes.

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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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A 1st Pique At The Tax Bill: Passive Voice On Mortgage Interest

This is the first of what I hope to be a series of small posts about small annoyances in the Tax Cuts and Jobs Act.  Thus the pun.  So if you think these posts resemble an Andy Rooney whine or a Seinfeldian rant please remember that I’m just a simple tax professor from West Texas, and a proceduralist to boot.

My first pique is with the proposed mortgage interest reform.  It completely ignores a great opportunity to fix a problem in the current statute.  The problem is with how the debt limit applies.  Current law uses the passive voice to limit the size of the loans that can generate the mortgage interest deduction.  For example, the $1,000,000 limit for acquisition indebtedness is written like this:  “The aggregate amount treated as acquisition indebtedness for any period shall not exceed $1,000,000 ($500,000 in the case of a married individual filing a separate return)” § 163(h)(3)(B)(ii).  The language limiting home equity indebtedness is similar.    

The problem with the passive voice is that you cannot tell whether the limit applies to each qualified residence or to each taxpayer.  In Voss v. Commissioner, 796 F.3d 1051 (9th Cir. 2015), the 9th Circuit complained that “Discerning an answer ... requires considerable effort on our part because the statute is silent as to how the debt limits should apply in co-owner situations.”  When Andy Rooney says it, it’s a whine, but when the 9th Circuit says it, it’s a problem.

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The Non-Intuitive Tax Implications of Bridge

Here’s a fun item I came across in the Washington Post: It’s Official: Bridge Is Definitely Not a Sport.

Turns out that in England sporting organizations do not have to pay the Value Added Tax and, hence, don’t include VAT charges on admission fees to sporting events.

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Bartlett: I Helped Create The GOP Tax Myth. Trump Is Wrong: Tax Cuts Don’t Equal Growth

Washington Post op-ed:  I Helped Create the GOP Tax Myth. Trump Is Wrong: Tax Cuts Don’t Equal Growth, by Bruce Bartlett:

Four decades ago, while working for Rep. Jack Kemp (R-N.Y.), I had a hand in creating the Republican tax myth. Of course, it didn’t seem like a myth at that time — taxes were rising rapidly because of inflation and bracket creep, the top tax rate was 70 percent and the economy seemed trapped in stagflation with no way out. Tax cuts, at that time, were an appropriate remedy for the economy’s ills. By the time Ronald Reagan was president, Republican tax gospel went something like this:

• The tax system has an enormously powerful effect on economic growth and employment.
• High taxes and tax rates were largely responsible for stagflation in the 1970s.
• Reagan’s 1981 tax cut, which was based a bill, co-sponsored by Kemp and Sen. William Roth (R-Del.), that I helped design, unleashed the American economy and led to an abundance of growth.

Based on this logic, tax cuts became the GOP’s go-to solution for nearly every economic problem. Extravagant claims are made for any proposed tax cut. Wednesday, President Trump argued that “our country and our economy cannot take off” without the kind of tax reform he proposes. Last week, Republican economist Arthur Laffer said, “If you cut that [corporate] tax rate to 15 percent, it will pay for itself many times over. … This will bring in probably $1.5 trillion net by itself.”

That’s wishful thinking. So is most Republican rhetoric around tax cutting. In reality, there’s no evidence that a tax cut now would spur growth. ...

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WaPo: The GOP's War On The EITC

In this op-ed in the Washington Post, columnist Catherine Rampell comments on a proposal in the Budget Committee Report 115-240 explaining the current budget legislation.  It's a proposal to tighten up processing of tax returns claiming the Earned Income Tax Credit (ETIC).  She writes:

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A Personal Tribute To Judge Posner And The Life Of The Mind

Back in September 2004, when I was still the general counsel of a corporation, I had begun to dip my toes into legal academia some twenty-five years after graduating from law school.  I eventually told some of that story in How Not to "Retire and Teach" (and its sequel six years later).  I didn't include it in the essays, but I have occasionally told friends this heretofore unpublished story involving Judge Posner.

The great change between 1979 and 2004 was, of course, the rise of interdisciplinarity in legal scholarship. It didn't take me long to figure out that law-and-economics and Judge Posner's contribution were the models par excellence of the shift in emphasis from doctrine to theory.  My first re-introductions to the theoretical perspective came from books like The Problematic of Moral and Legal Theory and The Problems of Jurisprudence.  I didn't necessarily agree with them; my experience was too many other factors intervened to make microeconomics meaningful in the extension from transactions to subjective decision making.  Indeed, from the beginning, I was more interested in what was going on in the head of the utilitarian "rational frog" (Judge Posner's wonderful coinage in Economic Analysis of Law) whose decision-making could be plotted on a curve.  Clearly, I thought moral theory was less problematic.

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Thomas Haskell and the Risk/Reward of Interdisciplinarity

I learned from Al Brophy's post this morning that Rice University historian Thomas Haskell passed away. See Al's post for Haskell's contribution to the history of antislavery sentiment in the antebellum U.S. This is my tribute.

Professor Haskell wrote not just about history, but about the philosophy and the writing of history - historiography.  That work is relevant to anybody, including law professors, who attempts to cross-disciplinary boundaries. Law professors (including me) do it all the time, and the risk/reward is obvious. Disciplines are human-created categories. Professor Haskell's history of the rise of these categories in academic social science was The Emergence of Professional Social Science: The American Social Science Association and the Nineteenth-Century Crisis of Authority. Disciplines engender orthodoxies and received wisdoms - authority.  To succeed in an academic discipline, you need to be careful about challenging them (see Louis Menand, The Marketplace of Ideas: Reform and Resistance in the American University). 

If you are within the discipline, the likelihood you are coopted into the received wisdom or are pragmatic about testing the limits is obviously higher than if you are not. If you aren't in the discipline and do challenge the received wisdom, you stand a good chance of being taken as a dilettante. Hence, the risk/reward (even paradox) of interdisciplinarity.  Those most inclined to it must do it very, very well even they do not carry a professional credential (Ph.D.) for the field into which they stray. 

The story of Professor Haskell's own courage in testing the limits comes after the break.

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New Sri Lanka Tax Bill Aims To Widen Tax Net, Cut Indirect Taxes

Reuters, New Sri Lanka Tax Bill Aims to Widen Tax Net, Cut Indirect Taxes:

Sri Lanka's new tax bill, demanded by the IMF as a condition for a third tranche of aid disbursed this week, will seek to ensure that all citizens pay direct taxes and cut indirect taxes, top finance ministry officials said on Friday.

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Pfizer-Allergan Merger Skirts New Anti-Inversion Rules, Sticks Shareholder With The Tax Bill

• Reuven Avi-Yonah (Michigan), The Three Causes of Inversions: Reflections on Pfizer/Allergan and Notice 2015-79
• Bloomberg, Pfizer's Viagra Tax Dollars Head to Dublin as U.S. Loses Again
• Financial Times, Pfizer Set for Tax Windfall With Ireland Move
• Fortune, Why New Tax Inversion Rules Won't Stop Pfizer-Allergan Deal
• The Guardian, Pfizer's $155bn Takeover of Allergan Set to Prompt Tax Row
• Los Angeles Times, Pfizer and Allergan's $160-Billion Pharmaceutical Merger Puts New Twist on Tax-Avoiding Inversions

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IRS May Challenge Dell's Use Of Tracking Stock In Acquisition Of EMC To Avoid $9 Billion Tax Bill

Following up on my previous post, Dell's Use Of Tracking Stock In Acquisition Of EMC Will Save $10 Billion In Taxes:  Re/code, Dell’s EMC Deal Could Fall Apart on Tax Rule:

Michael Dell’s ambitious $67 billion plan to take over storage giant EMC may face a big tax burden that could complicate or derail the deal entirely.

Dell insiders are worried the company could end up being on the hook for a tax bill of up to $9 billion following a regulatory review, sources familiar with the matter told Re/code. The worries stem from Dell’s unusual proposal to use a new type of stock share to help pay for the acquisition. Their concerns are also rooted in EMC’s wildly successful investment in the software company VMware, the value of which has risen by tens of billions of dollars since EMC acquired it in 2003.

The combination of factors has some Dell execs concerned, sources said, that certain key aspects of the deal may not qualify for the sort of tax treatment they consider essential for the transaction — the biggest tech acquisition ever proposed — to succeed.

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Warren Pushes Treasury To Finalize Private Equity Fee Rule

Following up on my previous posts (links below):  Bloomberg, Warren Pushes Treasury to Finalize Private Equity Fee Rule:

Senator Elizabeth Warren urged the Treasury Department to finalize its rule limiting the tax benefits enjoyed by private equity managers.

Warren, a Massachusetts Democrat, sent a letter Monday to the Treasury calling for quick finalization and swift enforcement of the rule. Warren sent the letter along with Senate Democrats Al Franken of Minnesota, Tammy Baldwin of Wisconsin and Sheldon Whitehouse of Rhode Island.

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Trump Says Tax Code Is Letting Hedge Fund Managers 'Get Away With Murder'

New York Times, Trump Says Tax Code Is Letting Hedge Funds 'Get Away With Murder':

Republican presidential front-runner Donald Trump blasted hedge fund managers on Sunday as mere "paper pushers" who he said were "getting away with murder" by not paying their fair share of taxes.

In a telephone interview on CBS's "Face the Nation," Trump vowed to reform the tax laws if elected and said the current system was harming middle class Americans who currently faced higher tax rates than traders on Wall Street.

"The hedge fund guys didn't build this country. These are guys that shift paper around and they get lucky," Trump said.

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Wal-Mart Has $76 Billion In Undisclosed Overseas Tax Havens

Bloomberg:  Wal-Mart Has $76 Billion in Undisclosed Overseas Tax Havens, by Jesse Drucker & Renee Dudley:

Wal-Mart Stores Inc. owns more than $76 billion of assets through a web of units in offshore tax havens around the world, though you wouldn’t know it from reading the giant retailer’s annual report.

A new study has found Wal-Mart has at least 78 offshore subsidiaries and branches, more than 30 created since 2009 and none mentioned in U.S. securities filings. Overseas operations have helped the company cut more than $3.5 billion off its income tax bills in the past six years, its annual reports show.

The study, researched by the United Food & Commercial Workers International Union and published Wednesday in a report by Americans for Tax Fairness, found 90 percent of Wal-Mart’s overseas assets are owned by subsidiaries in Luxembourg and the Netherlands, two of the most popular corporate tax havens.

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The IRS Scandal, Day 302

• The Atlantic:  The Plot to Muzzle the IRS and Save Secret Campaign Cash
• Daily Caller: Oversight Lawmaker: Holding Lois Lerner in Contempt Is ‘Where We’re Moving’
• The Economist:  Levi and the 501s
• Fox News:  Rep. Issa on IRS Hearing: I Followed the Rules, Rep. Cummings Threw a 'Hissy Fit'
• Fox News:  Republicans Fight Dem Efforts to Punish Issa for IRS Hearing Actions
• The Hill:  Issa Hands Dems the Mic
• The Hill:  Issa to Cummings: Sorry
• Huffington Post:  John Boehner Defends Darrell Issa Over Heated IRS Hearing
• Legal Times:  Tax Official Again Pleads Fifth on Capitol Hill
• Los Angeles Times:  GOP Blocks Democrats' Bid to Declare Darrell Issa 'Disrespectful'
• Mediaite:  Rep. Darrell Issa Apologizes to Cummings for Cutting Off Mic at IRS Hearing
• MSNBC:  Congressional Black Caucus Wants Issa Out as Committee Chairman
• MSNBC:  Issa Apologizes to Cummings for Hearing Clash
• National Review:  Democrats Demand Boehner Strip Issa of Oversight Chairmanship
• National Journal:  Silencing the Truth at the IRS
• New York Daily News:  Cummings and Issa Remain Incommunicado After Clash in Congress
• New York Times:  Issa Hands Democrats Weapon to Use on Him
• News Busters:  NBC, CBS See IRS Probe Hitting 'Dead End' After Democrat's Outburst; ABC Still Ignores
• Politico:  Dems Slam Darrell Issa in Resolution
• Roll Call:  House Votes to Table Resolution Condemning Darrell Issa
• Town Hall:  House Dems Slam Darrell Issa: What He Did Was “Un-American”
• Wall Street Journal:  GOP Blocks Effort to Condemn Issa Over Heated Hearing
• Washington Free Beacon:  Issa Fires Back: ‘Cummings Decided to Have Quite a Hissy Fit’
• Washington Post:  Black Caucus Wants Issa Stripped of Committee Chairmanship
• Washington Post:  Clash Between Issa, Cummings Latest Partisan Spat to Divide House Oversight Committee
• Washington Post:  Cummings: Raucous House Hearing Reflects ‘Negativity’ Toward Federal Employees
• Washington Post:  Democrats Condemn Issa as He Considers Contempt Charge for Lerner
• Washington Times:  Democrats’ Bid to Censure Rep. Darrell Issa Fails

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Boehner Would Accept 'New Revenue' Under ’Right Conditions’

• Bloomberg, Boehner Would Accept New Revenue Under ’Right Conditions’
• Mother Jones, John Boehner's Desperate Bluff on Taxes
• NBC News, Boehner Offers Tax Talks, but Outline Is Vague
• New York Times, Boehner Strikes Conciliatory Tone in Talk of Fiscal Cliff
• Politico, Boehner ‘Ready to be Led’ on Taxes
• Wall Street Journal, Reading the Tea Leaves on Boehner’s Opening Tax Bid
• Washington Post, Boehner Opens Door to ‘New Revenue,’ to Halt Debt
• Washington Times, Boehner: GOP Willing to Accept New Tax Revenue

Obama Win Seen Pyrrhic Without Republican Congress Assent on Taxes

Bloomberg:  Obama Win Seen Pyrrhic Without Republican Congress Assent on Taxes:

Barack Obama’s biggest test on tax policy will come even before his second term starts Jan. 20. The president wants to use an end-of-year showdown with Congress to force higher taxes on top earners and fulfill a promise from his 2008 and 2012 campaigns. To succeed, he will have to risk raising taxes for everyone or persuade Republicans to drop their demand to extend expiring tax cuts for all income levels. ...

Obama wants to take advantage of the leverage gained from his victory and his veto power to pursue a “grand bargain” that would avert the so-called fiscal cliff and employ a combination of tax increases and spending cuts to reduce future budget deficits. ...

In a speech yesterday as the Republicans neared clinching House control, Speaker John Boehner said the election wasn’t a “mandate for raising tax rates.” Boehner’s emphasis on “tax rates” as opposed to “taxes” indicates that the party may pursue policies that would curtail tax breaks to pay for keeping rates where they are now. Republican congressional aides told Bloomberg News Oct. 19 that they were designing options that would achieve those goals if the politics move in that direction.

Douglas Holtz-Eakin, a former director of the Congressional Budget Office, predicted that as in 2010, Obama will initially to extend all the tax cuts to prevent economic harm and later will seek higher taxes on top earners. ... Other pieces of Obama’s tax policy aren’t directly tied to the fiscal cliff. The president wants to cap tax breaks for high earners, including the deduction for charitable contributions and the exclusion of municipal bond interest. He has offered a series of miscellaneous policy changes, including taxing the carried interest of private equity managers as ordinary income, instead of at the lower capital gains rate, and removing about $4 billion a year in tax breaks from the oil and gas industry.

• CNN, Boehner Lays Down a Marker on Taxes 
• The Hill, Boehner:  GOP House Majority Means 'No Mandate' for Tax Hikes
• Huffington Post, Boehner Acceptance Speech: Voters Said 'No' To Raising Tax Rates

NY's Highest Court Rules 4-3: Lap Dances Are Not 'Art' and Thus Not Exempt From Sales Tax

• 677 New Loudon Corp. v. New York Tax Appeals Tribunal, No. 157 (NY Oct. 23, 2012)
• ABA Journal
• Associated Press
• BBC
• Forbes

From the dissent:

The ruling of the Tax Appeals Tribunal, which the majority upholds, makes a distinction between highbrow dance and lowbrow dance that is not to be found in the governing statute and raises significant constitutional problems. I therefore dissent. ...

Like the majority and the Tribunal, I find this particular form of dance unedifying -- indeed, I am stuffy enough to find it distasteful. Perhaps for similar reasons, I do not read Hustler magazine; I would rather read the New Yorker. I would be appalled, however, if the State were to exact from Hustler a tax that the New Yorker did not have to pay, on the ground that what appears in Hustler is insufficiently "cultural and artistic." That sort of discrimination on the basis of content would surely be unconstitutional. It is not clear to me why the discrimination that the majority approves in this case stands on any firmer constitutional footing.

If Only Nixon Could Go To China, Maybe Only Romney Can Do Tax Reform

Wall Street Journal op-ed:  Romney Should Release His Tax Returns, by Joseph J. Thorndike (Tax Analysts):

Mr. Romney would be well advised to simply cough up a decade's worth of returns. In all likelihood, the only thing he's hiding is more of the sophisticated tax avoidance that he's already demonstrated and that rich people engage in every day. Laudable? No. But not illegal, either. ...

Depending on what is in Mr. Romney's unreleased returns, further tax disclosure might be uncomfortable for him or downright deadly. But it won't be nearly as deadly as the weeks of bashing that he can expect from critics if he continues to stonewall on full disclosure. ...

Legally, candidates are entitled to their tax privacy. But politically, privacy is a relic of the past....

And there may be a silver lining to disclosure for Mr. Romney. If he can survive the firestorm of ginned-up outrage that's sure to follow a major release, then a newly inaugurated President Romney might be well positioned to lead the charge for real tax reform. If only an ardent anticommunist like Nixon could go to China, then maybe only a pro-business Republican with lots of experience in legally avoiding taxes can get American taxpayers out of the Caymans.

Three Swiss Bankers Indicted for Helping U.S. Taxpayers Hide $1.2 Billion From the IRS in Offshore Accounts

The U.S. Attorney for the Southern District of New York yesterday announced the indictment of three Swiss bankers with Wegelin & Co. for conspiring with U.S. taxpayers to hide more than $1.2 billion in assets from the IRS.

• U.S. Attorney press release
• Bloomberg
• CNN
• Financial Times
• New York Post (headline: "Swiss Bankers Had Fondue For Brains")
• New York Times
• Reuters
• Wall Street Journal

(Hat Tip: Ann Murphy.)

South Korea Passes 'Buffett Tax' on Those Earning >$259,000

`Korean Buffett Tax` Passed Despite Ruling Party Chief`s Opposition:

The National Assembly has passed a bill on the introduction of a 38% tax rate on the highest income bracket of 300 million won (259,000 dollars) or more. The bill was approved in a plenary session on Saturday, just 10 minutes before the start of the New Year.

The parliamentary strategy and finance committee concluded revision of the Income Tax Act by putting the brakes on a planned tax cut for the rich by curbing the reduction of the tax rate on such people.

Mindful of votes ahead of April`s general elections, however, ruling and opposition party lawmakers revived the so-called Korean Buffett tax at the last minute. Not only the government but also Park Geun-hye, chairwoman of the ruling Grand National Party`s emergency committee, opposed the bill but to no avail.

Certain members of the opposition claimed that the tax hike is a mere formality since it is applied only on 0.17% of income earners. Yet others warn that the decision has reversed tax policy from cuts to hikes and that this will fundamentally shake up national tax policy going forward.

UK Uncut Challenges Sweetheart Tax Deals With Goldman Sachs, Others

UK Uncut, Reflections on the Report on Tax Dodging:

A respected cross-party parliamentary committee released a damning report into dodgy tax deals struck between big business and bosses at HM Revenue and Customs (HMRC). It has made headlines, not just in the Guardian, but in the Daily Mail, the Sun, the Telegraph and as the leading story on the BBC Today Programme.

Tax Planning for the Occupy Wall Street Movement

David van den Berg (Tax Analysts), Occupy Groups Would Face Burdens, Get Benefits From Tax Exempt Status, Practitioners Say, 2011 TNT 250-2 (Dec. 29, 2011):

Some of the Occupy groups that have sprouted nationwide have taken steps toward becoming nonprofit organizations -- something that would impose several requirements on the groups but would also provide some benefits, practitioners told Tax Analysts.

Through large protests and public encampments, the Occupy groups have attempted to raise awareness about what they consider corporate greed and income inequality. So far, some Occupy organizations, including those in Portland, Ore., and Atlanta, have registered as nonprofits with their appropriate state agencies. On its website, the Occupy organization in Wilmington, N.C., said it has "voted to file" for section 501(c)(3) status.

The main advantage of tax exemption for the Occupy groups would be the ability to directly receive tax-deductible contributions, said Lloyd Mayer, a professor at the University of Notre Dame. But he isn't sure that matters to the Occupy groups. "Given the grass-roots nature of the movement, I am not sure how much their supporters need that incentive in order to be enticed into giving," Mayer said. "It appears inconsistent with the general character of these groups for them to seek such status and the organizational and operational restrictions that come with it." ...

Ofer Lion, of Mitchell Silberberg & Knupp LLP, said it makes sense for the groups to form as 501(c)(3) organizations, and that the Occupy groups could be "good" 501(c)(3)s engaged in issue advocacy. But a reluctance to appoint leaders may be one reason why more Occupy groups haven't sought exempt status, he said.

"Assuming that Occupy Denver or any of the other Occupy movements forms and is housed in a corporate nonprofit. Then there are often requirements as to how many directors there are, what officers are required, and I'm pretty sure that the president or CEO cannot be a dog," Lion said. "It may be that the corporate form -- that is the traditional method for nonprofits -- is not really in line with their structure, and so the two don't mesh." ...

Occupy Wall Street, the most well-known of the Occupy movements, is taking a different approach. The Alliance for Global Justice, a 501(c)(3) organization based in Washington, is serving as the fiscal sponsor for Occupy Wall Street.

According to the Alliance's website, its duty as sponsor is to collect and process all of Occupy Wall Street's donations and pass on the money to Occupy Wall Street. The Alliance must include Occupy Wall Street's financial reporting with its own when filing a Form 990, "Return of Organization Exempt from Income Tax," and the Alliance is accountable legally and financially to prove all of Occupy Wall Street's financial expenditures are in accordance with IRS rules for exempt organizations, according to a statement on the Alliance's website. ...

This model is a good one for Occupy Wall Street, Lion said. In many cases, there's no need for a nonprofit to form as its own corporation and file an exemption application. What it really needs to do is get its program going and succeed at it, he said. "Then, to the extent they want to go out on their own and leave the umbrella of their fiscal sponsor, that makes a lot more sense than wasting a lot of time and resources on formation when they're not really ready for it."

All Tax Analysts content is available through the LexisNexis® services.  Prior TaxProf Blog coverage:

• Deductibility of Donations to Occupy Wall Street (Oct. 31, 2011)
• Accountants: Occupy Wall Street Needs Your Help (Dec. 22, 2011)

Does Apple Pay its Fair Share of U.S. Taxes?

San Francisco Chronicle, Apple's 'High' Tax Rate May be Deceiving:

Does Apple really pay its fair share of U.S. taxes?

In a Nov. 3 report, Citizens for Tax Justice estimated that Apple paid an average effective U.S. tax rate of 31% between 2008 and 2010. That is close to the ostensible corporate income tax rate of 35%. Out of 280 companies in the study, only 49 had a higher effective tax rate than Apple.

Various bloggers and columnists seized on the report to put Apple on another pedestal, praising it as one of the few tech giants paying its fair share of U.S. taxes.

But in an overlooked report published in the journal Tax Notes in August, economist Martin Sullivan said Apple is no better than other multinationals that have been "painted as corporate tax dodgers by major media outlets."

He said that "despite outward appearances, Apple enjoys enormous foreign tax benefits, just as GE and Google do. By taking advantage of lax U.S. and foreign tax laws, Apple has been able to book a large share of its foreign profits in low-tax jurisdictions and greatly reduce its tax liability in the United States and other major countries where it conducts most of its real business activity."

He estimated that by shifting profits overseas, Apple is costing the U.S. government more than $1 billion a year.

More on Warren Buffett’s Tax Hypocrisy

Following up on Friday's post, Warren Buffett’s Tax Hypocrisy:

• Wall Street Journal editorial, Buffett's Latest Tax Break: Once Again He Foils the IRS:

For a guy who spends a lot of time advocating for higher taxes, Warren Buffett does a remarkably good job of minimizing his own corporate tax bill. This is all to the good for Mr. Buffett and his fellow Berkshire Hathaway shareholders, who no doubt can invest the money more wisely than the federal government is likely to do.

Mr. Buffett's recent decision to invest in Bank of America represents another tax-avoidance triumph for the Berkshire chief executive. U.S. corporations are subject to a top federal income tax rate of 35%, the second highest in the world. But the Journal's Erik Holm notes that Mr. Buffett and the Berkshire bunch won't pay anything close to that on their investment in BofA preferred shares.

That's because corporations can exclude from taxation 70% of the dividends they receive from an investment in another corporation. This exclusion is intended to prevent double- or even triple-taxation as money is earned by one company, paid to another company and then ultimately paid out to shareholders. The policy makes sense; we only wonder why the exclusion isn't 100%.

With the 70% exclusion for Mr. Buffett and his fellow shareholders, Berkshire will enjoy an effective tax rate of 10.5% on the $300 million in dividends it will receive each year from Bank of America.

We're tempted to suggest that Mr. Buffett should do what he might call the patriotic thing and volunteer Berkshire to pay the full 35% rate as a good corporate citizen. But even if Mr. Buffett won't say it, most Americans know that more jobs will be created if the money is deployed by the Berkshire bunch than by the Beltway boys.

• Berkshire Hathaway News Release:

An editorial in today’s Wall Street Journal says that “Berkshire Hathaway will enjoy an effective tax rate of 10.5% on the $300 million in dividends it will receive each year from Bank of America.” That statement is incorrect.

Virtually all of the stocks that Berkshire owns are held in its property-casualty subsidiaries, and that will be the case with the Bank of America preferred.

The tax treatment for dividends paid by U.S. corporations to property-casualty insurance companies was materially changed by a law passed in 1986. The changes were described in detail in the chairman’s letter included in Berkshire’s 1986 annual report.

A minor change in rate was made in 1993. Since that time dividends that insurers receive from U.S. companies incur an effective tax rate of 14.175%. For Berkshire, that rate will apply to dividends it receives from Bank of America.

• The Blaze, How Much is Buffett’s Berkshire Hathaway Back-Tax Bill Exactly? About $1 Billion
• Bloomberg, Walsh Says Buffett Call to Tax Rich ‘Disingenuous’
• Chicago Now, Warren Buffett: Tax Shirker and Hypocrite
• CNN, Buffett: WSJ Wrong About BoA Dividends
• Forbes, Warren Buffett Gets Special Tax Breaks And So Does Your Grandma
• Going Concern, Berkshire Hathaway: Wall St. Journal Is Wrong About Our Taxes on BoA Deal
• Huffington Post, Warren Buffett's Berkshire Hathaway Owes Taxes Going Back to 2002
• Huffington Post, Why Wait to be Taxed?
• New York Post editorial, Warren Buffett, Hypocrite
• NewsBusters, Warren Buffett's Company Hasn't Paid All Taxes Owed In Years, Media Mum
• The Street, Buffett Denies Tax Dodge on BofA Deal
• WSJ Dealbook, Warren Buffett’s Bank of America Deal Comes With Tax Break

Beale: Using Tax Policy to Redress Gender Discrimination After Wal-Mart

Linda Beale (Wayne State), WalMart, Gender Discrimination, Corporatism, the Supreme Court -- and, Yes, TAXES:

The Supreme Court handed down its decision on whether the million and a half women who think they have been discriminated against by the corporate giant because of their gender can bring a class action suit.  [Wal-Mart Stores, Inc. v. Dukes, No. 10-277 (June 20, 2011).]

As might be expected in this age of corporatism, the corporate giant won.  Women will have to pursue their own individual cases--making it much easier for the corporate giant to simply wait them out rather than settle, and making it much harder for the woment to hire the kind of top-notch attorneys (like the corporation can hire) to fight their case for them.  In other words, making it much much easier for the corporate giant to get away with breaking the law in its business practices on a routine basis without having to pay for it. ...

Even in academe, men tend to get equity pay raises (big ones) because they play the "game" of pretending that they are going to take a job somewhere else.  Women tend not to, because women tend to be honest about their permanence or impermanence in a place.  So men get a "retention" raise and women don't.  And men tend to start out higher anyway, because of the years of male dominance, and the tendency of the existing status quo to be reinforced by the male deans and male associate deans and male senior professors.

So what's the answer here?  Maybe we need some radical left thinking to counter the radical right fringe element that has almost taken over the country.  How about these ideas--many using tax policy to turn around the corporatist agenda? ...

• Congress could consider instituting a tax penalty on firms for gender or ethnicity or age discrimination in wages. ...
• Congress could institute an excise tax on corporations with more than $100 million in income annually, to go into a fund to pay the legal expenses of employees in those firms bringing individual suits against the firms for violating any civil or union rights.
• Congress could institute a variable corporate rate structure through a rate surcharge for corporations that relates to their record in paying their average workers an equitable salary by having the corporate tax rate increase when the compensation of top managers increases more rapidly than the compensation of the average worker, and a corporate tax rate decrease when the compensation of the average worker increases more rapidly than the compensation of the top managers.

NY Times: Companies Push for Repatriation Tax Holiday

New York Times, Companies Push for Tax Break on Foreign Cash, by David Kocieniewski:

Some of the nation’s largest corporations have amassed vast profits outside the country and are pressing Congress and the Obama administration for a tax break to bring the money home. Apple has $12 billion waiting offshore, Google has $17 billion and Microsoft, $29 billion.

Under the proposal, known as a repatriation holiday, the federal income tax owed on such profits returned to the United States would fall to 5.25% for one year, from 35%. In the short term, the measure could generate tens of billions in tax revenues as companies transfer money that would otherwise remain abroad, and it could help ease the huge budget deficit.

Corporations and their lobbyists say the tax break could resuscitate the gasping recovery by inducing multinational corporations to inject $1 trillion or more into the economy, and they promoted the proposal as “the next stimulus” at a conference last Wednesday in Washington. “For every billion dollars that we invest, that creates 15,000 to 20,000 jobs either directly or indirectly,” Jim Rogers, the chief of Duke Energy, said at the conference. Duke has $1.3 billion in profits overseas.

But that’s not how it worked last time. Congress and the Bush administration offered companies a similar tax incentive, in 2005, in hopes of spurring domestic hiring and investment, and 800 took advantage. Though the tax break lured them into bringing $312 billion back to the United States, 92% of that money was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research.

 

(Hat Tip: Ann Murphy.)

Update: Dan Shaviro (NYU), Banana Republic Watch

S.F. Exempts Stock Options From 1.5% Payroll Tax in Bid to Keep High Tech Firms

The San Francisco Chronicle reports that Mayor Ed Lee signed legislation on Friday to eliminate the city's 1.5% payroll tax on stock options in an attempt to keep software companies like Yelp and Zynga from re-locating out of the city. San francisco was the only California city to levy a payroll tax on stock options. Prior TaxProf Blog coverage:

• Taxing Twitter (Feb. 14, 2011)
• San Francisco to Impose 1.5% Tax on Stock Options (Feb. 19, 2011)
• 1.5% Tax on Stock Options May Drive High Tech Firms Out of San Francisco (Mar. 25, 2011)
• Twitter Tax Cut (Apr. 20, 2011)

Will the Gift Tax Save John Edwards?

With today's indictment of John Edwards on charges that he violated campaign-finance laws by accepting $925,000 from donors to conceal an extramarital affair with Rielle Hunter and resulting pregnancy, one element sure to be central to his defense is that his major donor treated the payments as gifts and reported them on gift tax returns.  From the Los Angeles Times:

The money came from two Edwards supporters — his national campaign finance chairman, Fred Baron, who died in 2008, and banking heiress Rachel "Bunny" Mellon, who is 100. ...  Mellon provided about $700,000. ... According to Mellon's attorney, she gave the money to Edwards as a personal gift and filed a gift tax return.

See also Huffington Post, DOJ is Wasting Time and Money on Edwards Case: "Edwards' lawyer says that one of the donors, the heiress Bunny Mellon, considered this money a personal gift to Edwards and filed a gift tax return." For more on today's developments, see::

• Indictment
• ABA Journal
• ABC News
• The Hill
• Los Angeles Times
• New York Times
• Wall Street Journal
• Wall Street Journal Law Blog
• Washington Post

No-Tax ‘Zealot’ Norquist Emerges as Barrier to U.S. Debt Deal

Bloomberg, No-Tax ‘Zealot’ Norquist Emerges as Barrier to U.S. Debt Deal:

When members of the House Budget Committee gathered over sandwiches to meet with the leaders of President Barack Obama’s debt commission in Washington, former Senator Alan Simpson delivered a warning. “If you are in thrall to Grover Norquist,” the Wyoming Republican who co-led the debt panel said he told the group in February, “this country hasn’t got a prayer.”

There may be enough congressional Republicans enthralled with Norquist, a small-government advocate who has spent the last quarter-century pressing lawmakers to sign a pledge never to raise taxes, to kill any comprehensive, bipartisan deal to rein in the $14.3 trillion national debt, say current and former members of Congress. "Until Republicans are more afraid of the deficit than they are of Grover Norquist, we’re going to have a problem,” said Representative Christopher Van Hollen of Maryland, the top Democrat on the Budget Committee.

Norquist, 54, president of Americans for Tax Reform, says he has secured written pledges from 40 of the 47 Republicans in the Senate and 233 of 240 party members in the House. More than 1,300 state-level legislators, governors and even auditors have also signed, Norquist said. That includes Wisconsin Governor Scott Walker, Texas Governor Rick Perry and Ohio Governor John Kasich, all Republicans, he said.

Those who sign gain from Norquist’s support. Those who break the promise risk his wrath.

• Salon, The GOP's Wrongheaded Fixation on Taxes

Tax News Roundup

• Bloomberg, Free Money Claim Roils Dispute on One-Time U.S. Offshore Tax Holiday
• Bloomberg, IRS Fails to Collect $305 Million Tax on Overseas Contractors
• Bloomberg, Labor Unions, Nonprofits Seek Curbs on Corporate Tax Breaks
• Christian Science Monitor, Many Industries Reap Tax Breaks. Is Picking on Big Oil Unfair?
• Citizens for Tax Justice, Corporate Tax Reform: Consumer Groups, Labor Unions, Faith-Based Groups at Odds with Obama on Goals
• CNN, Forget the Gas Tax -- A Driving Tax May be Next
• Forbes, Tax Defense: "I Have ADD"
• The Hill, Unions to Lawmakers: Take Away Corporate Tax Expenditures to Pay Down Deficit
• Mauled Again, Three Alarming Tax-Related Articles
• New York Daily News, The Millionaire's Tax is Dead!
• Tax Policy Blog, S. 940. The Latest Example of Tax Policy-as-Political-Weapon
• Tax Vox, Too Many Cooks on Tax Policy?
• Time, Why Doesn't Amazon Collect Sales Tax? The Constitution, That's Why
• Weekly Standard, Taxing The Rich? Obama Is All Talk

WSJ: Prosecution of Tax Lawyer Daugerdas Enters Home Stretch

Wall Street Journal Law Blog, Prosecution of Tax Lawyer Daugerdas Enters Home Stretch:

The most unavoidable things in life, the saying goes, are death and taxes.

But that didn’t stop tax lawyer Paul Daugerdas [right, featured in The American Lawyer December 2003 cover story, Helter Shelter]and others from trying to offer wealthy clients a way out of taxes, said assistant U.S. Attorney Nanette Davis, in her closing argument Tuesday of the 10-week tax fraud trial of Daugerdas and four others.

Daugerdas, you recall, ran a lucrative tax practice at the former Dallas firm Jenkens & Gilchrist, but the firm and Daugerdas’s career imploded after he was charged with selling fraudulent tax shelters. ...

Daugerdas’ lawyer Chris C. Gair, of Jenner, noted: “Daugerdas is a tax lawyer. It’s his job to interpret the Internal Revenue Code, to advise his clients and to do his best to help those clients pay the least amount of taxes they lawfully can.”

• ABA Journal, Aggressive Tax Lawyer or Criminal? Jury to Decide re 2 Ex-Jenkens & Gilchrist Partners
• Bloomberg, Tax-Shelter Lawyers Acted in Bad Faith, Prosecutor Argues
• Forbes, Tax Shelters on Trial – BDO and Deutsche Bank Pushed Products

Tax Revenues Are Rising

Wall Street Journal editorial, Tax Revenues Are Rising:

Politicians don't want to tell you, so we will: Tax revenues are coming back smartly now that the economy is growing. California recently discovered $2 billion in unexpected tax revenue, even as Governor Jerry Brown promotes a referendum to raise taxes. Connecticut has raised its revenue estimates by $465 million, even as Governor Dannel Malloy signed the largest tax increase in state history last week.

The revenue revival is also helping the federal fisc, with overall receipts rising by $110 billion, or 9.1%, in the first seven months of fiscal 2011. The biggest news is the increase in individual income tax receipts, which rose to $630 billion from $501 billion, or 25.9%, from October through April.

WSJ: Connecticut Tax Plan is the 'Anti-Christie'

Wall Street Journal editorial, The 'Anti-Christie': What Connecticut Governor's Tax Hike Plan Tells Us About Liberal Governance:

That's how Connecticut's Democratic Governor Dannel Malloy describes himself in contrast to New Jersey Governor Chris Christie, and we'd have to say he's right. Nutmeg State residents will pay for the appellation.

Whereas Mr. Christie has vetoed tax increases, cut spending and is trying to reform public pensions, Mr. Malloy wants to close the Connecticut budget deficit with a huge tax hike and the legislature in Hartford may approve it as early as next week. It's worth exploring Connecticut's tax gamble, not least because it is so at odds with the fiscal strategy that most Republican Governors and New York Democrat Andrew Cuomo are employing to repair their state finances.

The Yankee Institute, a free market think tank, counts some two dozen new taxes in Mr. Malloy's budget. ...  He also wants to kick every Connecticut worker with earnings above $50,000 into a higher tax bracket. Those who make more than $500,000 would see their tax rate rise to 6.7% from 6.5%. Even that's not enough for Democrats in the legislature who want to raise it to 7%. ...

This is what always happens when a state introduces an income tax: A gusher of new revenue leads to higher spending, which leads the politicians to demand higher rates; rinse the taxpayers and repeat. What started in Connecticut as a 4.5% top marginal rate is now 6.5%, and yet the state is still running a $3.5 billion deficit. As the nearby table shows, state spending growth has far exceeded gains in median income since the income tax was introduced. Spending growth also roughly doubled the increase in population plus inflation (about 72%) over the period. ...

Connecticut is adopting the Illinois model of raising taxes on everyone to avoid serious spending restraint or pension reform. When these tax increases prove not to be enough, Mr. Malloy will propose another one. A state that was once the Northeast refuge from high tax New York, New Jersey, Rhode Island and Massachusetts is fast becoming another slow growth, union-dominated, job-shedding imitation.

NY Times: Gift of Non-Voting Bose Stock to MIT Raises Tax Questions

New York Times, Gift to MIT from Bose Founder Raises Tax Questions, by Stephanie Strom:

The founder of the Bose Corporation, a privately held company that makes high-end audio products, has donated the majority of the company to the Massachusetts Institute of Technology, the university said Friday. But Amar G. Bose ... placed some unusual restrictions on the Bose shares he donated to the university. While the shares give the university majority ownership, they are nonvoting and thus confer no control over the company and its operations. Nor can MIT sell the shares. It will receive dividends from Bose. ...

[S]ome tax experts said the gift and the lack of detail about it raised questions. “We don’t know much about the terms of this gift, but it seems like it clearly falls into a gray area that has been of concern to Congress,” said Dean Zerbe, national managing director of the tax consulting firm Alliantgroup. ... Roger Colinvaux, an associate law professor at Catholic University and previously a staff member of the Congressional Joint Committee on Taxation, also said the gift raised questions for him. “If the shares truly can’t be sold so that there is some restriction on the university’s ability to transfer stock, then it would suggest it is a contribution of partial interest only, which would not be deductible as a charitable contribution,” said Mr. Colinvaux, who recently published an article in The Florida Tax Review that argues that the laws governing charity are outdated and inadequate. But Erik Dryburgh, a nonprofit lawyer, said he did not see a problem with the gift. “On its face, I don’t see the abuse or potential abuses that were present in some of the more abusive gift transactions we saw in the past,” Mr. Dryburgh said.

Mr. Zerbe and Mr. Colinvaux, though, said the gift brought to mind various tax shelters involving charities that came under scrutiny during the time they worked in Congress. [MIT] denied that Dr. Bose’s gift was similar to those tax strategies. ... Most of the tax shelters cited by Mr. Zerbe and Mr. Colinvaux involved an elaborate strategy where privately held companies gave nonvoting shares to a charity and then, after a period of time, bought them back. The transactions attracted the attention of regulators puzzled by why donors would give nonprofit groups nonvoting shares, whose value — and thus potential for tax deduction — is limited by their nonvoting nature.

In 2003, the Senate Permanent Subcommittee on Investigations looked into such transactions and found that in some cases, they were an elaborate way of using a charity’s tax-exempt status to erase tax liabilities for the other shareholders of the company involved.

A charity involved in such a tax strategy would receive income from the company in proportion to the size of its holdings of nonvoting stock. But while that income was taxable, it was not distributed to the charity and stayed at the company to be reinvested. The charity did not owe taxes on the income, anyway, because it was tax-exempt. Later, the charity would sell the nonvoting shares back to the company at fair market value, and the company would distribute the income, tax-free, that had been associated with those shares among its other shareholders.

In other, similar cases, charities that received nonvoting stakes in privately held companies through gifts of stock used large losses they had incurred on unrelated businesses to offset taxes for other shareholders. Mr. Dryburgh wrote a paper on that type of tax shelter. In 2004, the IRS listed as “restricted” such transactions and denied deductions associated with them.

(Hat Tip: Bob Kamman.) BNA reported yesterday that the IRS is increasing audit scrutiny of unrelated business income loss deductions by colleges and universities.