TaxProf Blog

IRS Recalls 46,000 Workers To Handle Tax Returns And Process Refunds During Government Shutdown

The IRS yesterday released a plan to have 46,000 of its 80,000 employees on the job for tax-filing season, up from 10,000 employees.

• IRS, Fiscal Year 2019 Lapsed Appropriation Contingency Plan (Tax Year 2018 Filing Season)
• IRS, IRS Operations During the Appropriations Lapse
• New York Times
• Wall Street Journal

Deans, Law Profs Weigh In On The California Bar Exam

• Robert Anderson (Pepperdine), Analysis of the California Bar Examination Report, Part 1
• Robert Anderson (Pepperdine), The California Bar Crisis: A Changing Bar Exam or Changing Admissions Standards?
• Jennifer Mnookin (Dean, UCLA), The Time Is Now For California To Lower Its Bar Exam Pass Score
• Derek Muller (Pepperdine), Do Specific Substantive Courses Prepare Students for Those Topics on the Bar Exam? Probably Not
• Derek Muller (Pepperdine), A Few Longer Thoughts on the Four Debates About the Bar Exam
• Derek Muller (Pepperdine), Why Are Law School Graduates Still Failing the Bar Exam at a High Rate?
• Martin Pritikin (Dean, Concord Law School at Purdue University Global), The California Bar Exam Disaster: Why It Happened and What To Do About It

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Tax Court Operations During The Federal Government Shutdown

Disruptive Leadership In Legal Education

Nicholas A. Mirkay (Hawaii) & Palma Joy Strand (Creighton), Disruptive Leadership in Legal Education:

Legal education is ripe for disruption because the legal profession and the law itself are ripe for disruption. In the last recession, demand for legal education dropped 40 percent, and only in the last year are we seeing increases in law school admissions. The recession illuminated an even bigger crisis for law and legal education—an increasing mismatch between the limited services that the law and lawyers provide and the vast and acute societal needs for legal services. A recent American Bar Association study estimated that 80 percent of the poor and those of moderate income lack meaningful access to our justice system and legal services.

Ample scholarship exists on how to restructure legal education to address this mismatch. However, this essay undertakes a new focus—the tough and potentially perilous road of attempting necessary change in a real-world law school setting. We impart our experiences as unwitting “disruptive leaders” prodding a small, private law school to meet the changing legal environment, and experiencing extreme blowback as result. We discuss characteristics of academia generally that contributed to this resistance—tenure, academic freedom, and the imperatives of university administration to raise funds and maintain tradition rather than respond innovatively to shifting economic and social dynamics. We also highlight characteristics of legal education that make disruptive leadership particularly unlikely to succeed: the ABA monopoly in legal regulation and the gendered nature of law and legal education.

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Save The Date: Pepperdine Law School Dinner

Save the Date
46th Annual School of Law Dinner
Saturday, March 30, 2019
The Beverly Hilton
Beverly Hills, California

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Johnson: Uniform Internet Sales Tax After Wayfair

Calvin H. Johnson (Texas), Don't Mess with Texas: Uniform Internet Sales Tax after Wayfair?, 90 State Tax Notes 625 (Nov. 12, 2018):

Johnson urges the Texas legislature, following the Supreme Court's Wayfair decision, to make internet sales into Texas subject to Texas sales tax, without adopting a multi-state uniform sales tax or otherwise modifying its sales tax.

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7th Annual NYU/UCLA Tax Policy Symposium: New Approaches To The International Tax Base

NYU/UCLA Tax Policy Symposium, New Approaches to Calculation and Allocation of the International Tax Base,  71 Tax L. Rev. 471-623 (2018)

• Deborah H. Schenk (NYU), Foreword, 71 Tax L. Rev. 471 (2018)
• Michael P. Devereux (Oxford) & John Vella (Oxford), Gaming Destination-based Cash Flow Taxes, 71 Tax L. Rev. 477 (2018)
• Paul Oosterhuis (Skadden) & Amanda Parsons (Skadden), Destination-based Income Taxation: Neither Principled Nor Practical?, 71 Tax L. Rev. 515 (2018)
• Wei Cui (British Columbia), Residence-based Formulary Apportionment: (In)feasibility and Implications, 71 Tax L. Rev. 551 (2018)

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Law Schools, Standards, And The Bar Passage Rate

Following up on my previous post, Nevada Lowers Bar Exam Cut Score From 140 to 138, Pass Rate Increases By 23%:  Las Vegas Review-Journal editorial, Law schools, Standards and the Bar-Pass Rate:

Nevada’s decision in 2017 to lower the cut score necessary to pass the state’s bar exam may have ramifications beyond higher success rates. The American Bar Association is currently considering pulling its sanction from law schools that graduate too many students who fail the test.

The new ABA accreditation standard would “require 75 percent of a given school’s test takers to pass the bar within two years of graduation,” The Wall Street Journal reported Monday. The proposal will be considered this month when the association convenes for a meeting in, ironically, Las Vegas. ...

Consider UNLV’s Boyd School of Law. In July 2011, the school’s bar-pass rate was an impressive 87 percent. Five years later in 2016, the number had plummeted to 63 percent. In response, the state slightly lowered its cut score. Voila! The 2017 rate jumped to 81 percent.

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The Ted Danson Of International Tax (The OECD) And Its Claim To Fame (BEPS)

Paul de Haan (CapaBuild) & Gitte Heij (Melbourne), The Good Place or the Bad Place? The Ted Danson of International Tax: The OECD and its Claim to Fame, BEPS.

The Good Place is a new Netflix series. A fantastic sitcom with Ted Danson in an impressive lead role as (Arch angel) Michael. In the series Eleanor Shellstrop (Kristen Bell) has died and ends up — by mistake — in the Good Place. Michael explains how it works. All actions of people are valued with plus and minus points. At the end of your life, all plus and minus points are added up and if you have a sufficient balance you end upon in the Good Place. Committing genocide is minus 434,484.45. Use of Facebook as a verb: minus 5.55. Remaining loyal to the Cleveland Browns plus 53.83 and remembering your sister’s birthday plus 0.04.

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Nicholas Mirkay Named Carlsmith Ball Scholar At Hawaii

Nicholas A. Mirkay has been named a Carlsmith Ball Scholar at the University of Hawaii William S. Richardson School of Law:

Professor Nicholas A. Mirkay is a relatively new member of the Richardson Law School faculty, bringing a wealth of expertise in tax law and governance issues as well as a detailed research agenda that includes a dissection of the new federal tax law — the Tax Reform Act of 2017 — and its implications. Those implications include the new law’s contributions to the growing wealth disparity in this country.

“The Gini index, which measures the difference between actual income distribution and perfectly equitable distribution, indicates that the U.S. is a far more unequal society than most other advanced, developed countries,” writes Mirkay, describing a major research paper underway. “This article focuses on the increasing wealth disparity, particularly the opportunity to create wealth, and the impact that the federal and state tax systems contribute to that growing disparity and declining opportunity.”

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NY Times: Female Economists Push Their Field Toward A #MeToo Reckoning

Following up on my previous posts:

• Women Economists Face A 'Toxic' Work Environment (Aug. 22, 2017)
• NY Times, Women Force A Reckoning Over Bias In Economics (Jan. 12, 2018)

New York Times, Female Economists Push Their Field Toward a #MeToo Reckoning:

The economics profession is facing a mounting crisis of sexual harassment, discrimination and bullying that women in the field say has pushed many of them to the sidelines — or out of the field entirely.

Those issues took center stage at the American Economic Association’s annual meeting, the largest gathering of the profession, last weekend in Atlanta. Spurred by substantiated allegations of harassment against one of the most prominent young economists in the country, top women in the field shared stories of their own struggles with discrimination. Graduate students and junior professors demanded immediate steps by the A.E.A. to help victims of harassment and discipline economists who violate the group’s newly adopted code of conduct.

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The Making Of International Tax Law: Empirical Evidence From Natural Language Processing

Elliott Ash (ETH Zurich) & Omri Y. Marian (UC-Irvine), The Making of International Tax Law: Empirical Evidence from Natural Language Processing:

We offer the first attempt at empirically testing the level of transnational consensus on the legal language controlling international tax matters. We also investigate the institutional framework of such consensus-building. We build a dataset of 4,052 bilateral income tax treaties, as well as 16 model tax treaties published by the United Nations (UN), Organisation for Economic Co-operation and Development (OECD) and the United States. We use natural language processing to perform pair-wise comparison of all treaties in effect at any given year. We identify clear trends of convergence of legal language in bilateral tax treaties since the 1960s, particularly on the taxation of cross-border business income.

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Ray Madoff Makes Sure Money Maneuvers To The Right Pockets

Boston College: The Heights, Ray Madoff Makes Sure Money Maneuvers to the Right Pockets:

Like most interesting people in the world, Madoff’s professional journey has been a tumultuous one—marked by a transition from being a big-time corporate lawyer to a blossoming law professor to, finally, the brainy philanthropy expert she is today. After obtaining her undergraduate degree in philosophy from Brown University, Madoff became a tax lawyer, a career path she found predictable given her educational background.

“A friend of mine has a theory that all philosophy majors that go to law school become tax lawyers,” Madoff said.

analytical philosophy undergraduate background trained her to ask big questions—pondering the nature of goodness as a philosophy undergrad naturally led her to debate classic tax dilemmas, such as the nature of borrowing money as opposed to investing money. For nine years, Madoff exercised her analytical philosophy skills as a tax attorney before moving on to a job she was not nearly as prepared for: teaching at BC Law.

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Ring: Section 199A’s Workplace Shift

Diane Ring (Boston College), Section 199A’s Workplace Shift:

As we mark the one year anniversary of tax reform, the aftermath continues to dominate tax policy analysis. New § 199A, which my co-author, Shu-Yi Oei, and I initially explored here and here and here, continues to attract significant attention, both in terms of the provision’s likely substantive effects, and the legislative, regulatory, and political issues it raises.

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Leviner Presents Public Opinion And Tax Justice Today At Hebrew University

Sagit Leviner (Ono Academic College, Israel) presents In the Eye of the Beholder: Public Opinion on Tax Justice at the Hebrew University Faculty of Law today as part of its Tax Law Colloquium Series:

The tax system is one of the most influential of civic institutions of our time. Taxes often detract at least one third of our income and they present an immediate and consequential effect with respect to a broad array of actions we make daily, when we choose to get married, have kids, go to college, or buy a loaf of bread. And, even though tax cuts and reforms are accordingly appealing to many people, it is worth taking time to ponder over the consequences of such cuts and reforms.

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WSJ: Do Enough Law Graduates Pass The Bar Exam?

Wall Street Journal, New Test for Law Schools: Do Enough Graduates Pass the Bar?:

If a law school can’t prepare three-quarters of its graduates who take the bar exam to pass, it shouldn’t exist.

That’s the view of the American Bar Association’s accreditation council, which is renewing a push to toughen requirements in the face of historically low passage rates for attorney-licensing exams. The ABA group retreated from an earlier attempt after detractors said it would hurt schools with larger enrollments of minority students and those in states with more difficult exams.

The proposal—to condition ABA accreditation on meeting a 75% bar-pass rate—will be back on the table this month at an ABA meeting in Las Vegas and is likely to go into effect this year.

“If a school can’t get enough of its students to have a high enough pass rate, then there’s a problem,” said Barry Currier, the ABA’s managing director of accreditation and legal education.

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Glogower: Taxing Inequality

Ari D. Glogower (Ohio State), Taxing Inequality, 93 N.Y.U. L. Rev. 6 1421 (2018)

Economic inequality in the United States is now approaching historic levels last seen in the years leading up to the Great Depression. Scholars have long argued that the federal income tax alone cannot curtail rising inequality and that we should look beyond the income tax to a wealth tax. Taxing wealth also faces two central and resilient objections in the literature: A wealth tax penalizes savings and overlaps with a tax on capital income.

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Pepperdine Seeks To Hire A Legal Research & Writing Professor

Pepperdine Seeks To Hire A Legal Research & Writing Professor:

University School of Law is conducting a nationwide search seeking a Legal Research and Writing Professor. Applicants must have a J.D. from an ABA-accredited law school, have excellent academic credentials, be committed to teaching Legal Research and Writing, and support the goals and mission of the University. Applicants should have at least two to three years of post-J.D. experience in a position or positions requiring substantial legal writing. The position comes with a market-competitive salary, employment benefits, and the title of Assistant Professor of Legal Research and Writing.

The School of Law is an ABA accredited, AALS member law school located in Malibu, California. Pepperdine is a Christian university committed to the highest standards of academic excellence and Christian values, where students are strengthened for lives of purpose, service, and leadership. The School of Law welcomes applications from people of all faiths and is particularly interested in receiving applications from candidates who may bring greater racial, ethnic, and gender diversity to the faculty of the School of Law.

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Lesson From The District Court: OIC Rejection Is No Basis For Wrongful Collection Suit Under §7433

Alas!  A closed Tax Court issued no opinions last week.  Curse that federal shutdown!  But the federal district courts did issue opinions.  The Administrative Office of the U.S. Courts website says they have enough money (from fees) to run through January 18th.  And their opinions teach lessons as well.

Today’s lesson comes from a lawsuit filed against the United States by Mr. Nicholas Morales, Jr. in 2017.  He sued under §7433, a statute that gives taxpayers a cause of action against the government when any IRS employee negligently, recklessly, or willfully "disregards" any statute or associated regulation in title 26 “in connection with any collection of Federal tax.”  His Complaint alleged that IRS employees had disregarded §7122 in refusing his Offer In Compromise.     

The Federal District Court for the District of New Jersey has issued two opinions in the case: Morales v. United States (Morales I) on March 26, 2018 and Morales v. United States (Morales II) on January 2, 2019.  Both opinions are marked “Not for Publication.”  They are not, however, marked “Not for Blogging”!  That’s a good thing because they actually make for a good basic lesson about the scope and limits of §7433.  You will find the lesson below the fold.

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Why I Didn’t Answer Your Email: My Inbox Will Always Be Waiting For Me, But My Children Will Not

New York Times op-ed:  Why I Didn’t Answer Your Email: Because My Inbox Will Always Be Waiting For Me, But My Children Will Not, by KJ Dell’Antonia:

I’m 47 years old. Two days ago, you sent me an email, which I did not answer. I didn’t answer it, in part, because I am 47 years old.

I appreciated your email. You are a person, who has written an email, and I am a person, who should reply to that email. However, your email arrived on Wednesday afternoon, and just as I opened it, my 16-year-old son came in. He wanted to describe to me an app he is in the process of developing. Then he showed me a funny article someone had sent him, and I showed him a funny article someone had sent me. ...

I was so inspired by this that I abandoned your email, and I applied myself to my work. I would have replied to your email ..., I am certain, except that my 11-year-old daughter came in. ...

I think that I would have answered your email if you had sent it earlier, by which I mean several years earlier, when these children were smaller and their conversation more repetitive. I would have been hidden in my office, a younger, more driven me, instead of sitting, as I often do now, in the middle of the house, an invitation to interruption. ...

I almost answered your email later, after bedtime, which is when I have often answered emails. My laptop was perched on my bedside table. My husband was perched on his side of the bed, and he leaned back and asked me if I’d given any thought to whether the chickens would need to be kept away from the apple trees after he sprayed them with something to keep the bugs away.

We moved on to the children’s math grades, then to the way they just take their socks off and leave them, inside out, no matter where they are. I looked at the clock and saw that it was not as early as I’d thought, not for a lot of things, and so we turned off the light, and I did not answer your email.

Your email sat among emails from bosses and editors and orthodontists all through the next workday. ... I thought about answering your email in the afternoon, while my older daughter and I waited outside the school for her sister to finish a piano lesson. My daughter probably would not have minded. She is almost 13, and sometimes, when she sits in the house texting while I try to talk to her, I squirt her with the bottle I keep on the counter to spray the cats when they start scratching the back of the sofa. I could have answered your email then. I admit it. We could have sat there, in peaceful silence, each staring at our phone. I had time to answer your email, and I did not.

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Public Debt And Low Interest Rates

Olivier Blanchard (MIT), Public Debt and Low Interest Rates (Video of American Economic Association Presidential Lecture (Jan. 4, 2019)):

The lecture focuses on the costs of public debt when safe interest rates are low. I develop four main arguments.

First, I show that the current situation in which, in the United States, safe interest rates are expected to remain below growth rates for a long time, is more the historical norm than the exception. If the future is like the past, this implies that debt rollovers, that is the issuance of debt without a later increase in taxes may well be feasible. Put bluntly, public debt may have no fiscal cost.

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TaxProf Blog Weekend Roundup

Saturday:

• This Week's Ten Most Popular TaxProf Blog Posts
• Government Shutdown Leaves Law Student Externs Scrambling
• Syracuse's Inaugural Hybrid Online JD Class Has Higher LSAT Scores Than Its Brick-And-Mortar 1L Class
• The Impact Of Tax Reform On Home Ownership And Children

Sunday:

• Creating A Purpose-Driven Organization — Like KPMG
• California Bar Should Lower Cut Score To Benefit Students Of Color
• The Resilience Of Religion In American Higher Education
• The Top Five New Tax Papers

Creating A Purpose-Driven Organization — Like KPMG

Harvard Business Review:  Creating a Purpose-Driven Organization, by Robert E. Quinn (Michigan) & Anjan V. Thakor (Washington U.):

When Gerry Anderson first became the president of DTE Energy, he did not believe in the power of higher organizational purpose.

We’re not talking about having a clear mission that focuses largely on how a business will generate economic value. DTE had one that set out the goal of creating long-term gains for shareholders, and Anderson understood its importance.

A higher purpose is not about economic exchanges. It reflects something more aspirational. It explains how the people involved with an organization are making a difference, gives them a sense of meaning, and draws their support. But like many of the leaders we’ve interviewed in our research, Anderson started his tenure as president skeptical about how much it mattered. The concept of higher purpose didn’t fit into his mostly economic understanding of the firm.

But then the Great Recession of 2008 hit, and he knew he had to get his people to devote more of themselves to work. Even before the financial crisis, surveys had demonstrated that DTE employees were not very engaged. It was a classic quandary: Employees couldn’t seem to break free of old, tired behaviors. They weren’t bringing their smarts and creativity to their jobs. They weren’t performing up to their potential. Anderson knew that he needed a more committed workforce but did not know how to get one.

That was when retired army major general Joe Robles, then the CEO of USAA and a DTE board member, invited Anderson to visit some USAA call centers. Familiar with the culture of most call centers, Anderson expected to see people going through the motions. Instead he watched positive, fully engaged employees collaborate and go the extra mile for customers. When Anderson asked how this could be, Robles answered that a leader’s most important job is “to connect the people to their purpose.”

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California Bar Should Lower Cut Score To Benefit Students Of Color

Sacramento Bee, Should State Adopt Lower Passing Score for the Bar Exam? Current One May Harm Students of Color:

A continuing decline in California’s bar exam pass rate is prompting nearly all of the state’s law school deans to call for an overhaul of the exam.

They suggest the state’s minimum passing score of 144 is too high, compared to the national average of 135, and disproportionately keeps African-American and Latino law graduates from entering the profession. They also say that California graduates who perform better than average, and who would have passed the bar in any other state, are failing in California.

The criticisms, included in a letter signed by 19 of the state’s 20 ABA accredited law school deans, follows the most recent July 2018 bar exam that saw scores fall to a 67-year low. Only 40.7 percent of test takers passed the exam, roughly a 9 percent drop since July 2017. California has seen more applicants fail than pass the exam since 2013.

At a time when the legal profession is looking to build diverse teams, the deans say the cut score of 144 — second highest in the nation — is too limiting for all applicants but especially harms minority graduates.

Newly released data, collected after the July 2018 bar exam, shows that if California adopted the national average, the number of African-American law graduates passing the exam would have doubled.

Nearly 24 percent more Latino law graduates would pass the exam if California adopted the national average score.

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The Resilience Of Religion In American Higher Education

Inside Higher Ed Book Review, The Resilience of Religion in American Higher Education (Baylor University Press 2018):

William F. Buckley Jr.'s 1951 book God and Man at Yale popularized a view of higher education as hostile to faith. A new book, however, The Resilience of Religion in American Higher Education (Baylor University Press), finds faith alive and well in American higher education. The authors find that resilience evident both at public and private institutions. And they find it at religious institutions with varying ideas about their missions. ...

The authors are John Schmalzbauer, a professor of religious studies at Missouri State University and the author of People of Faith: Religious Conviction in American Journalism and Higher Education, and Kathleen A. Mahoney, a senior staff member at the GHR Foundation and author of Catholic Higher Education in Protestant America: The Jesuits and Harvard in the Age of the University. They responded via email to questions about their new book.

Q: Many evangelical colleges have been criticized for their views on sexuality (in particular ideas about gay people) and science (a belief by some that the Bible is to be taken literally, challenging ideas about evolution and so forth). Do you see those views holding back these colleges?

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The Top Five New Tax Papers

There is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new #1 paper and a new paper debuting on the lit at #5:

1. [397 Downloads]  Digital Battlefront in the Tax Wars, by Ruth Mason (Virginia) & Leopoldo Parada (Turin)
2. [351 Downloads]  Profit Shifting Before and After the Tax Cuts and Jobs Act, by Kimberly Clausing (Reed)
3. [326 Downloads]  How Data Should (Not) Be Taxed, by Johannes Becker (University of Muenster), Joachim Englisch (University of Muenster) & Deborah Schanz (Ludwig Maximilian University of Munich)
4. [269 Downloads]  Beyond Notice-and-Comment: The Making of the § 199A Regulations, by Shu-Yi Oei (Boston College) & Leigh Osofsky (North Carolina)
5. [213 Downloads]  The Proposed Section 163(j) Regulations, by David S, Miller, Sejin Park, Mani Kakkar & Sean Webb (Proskauer)

This Week's Ten Most Popular TaxProf Blog Posts

1. Bryan Camp (Texas Tech), Lesson From The Tax Court: The Cheeky' Way To Avoid The Fraud Penalty
2. John McGinnis (Northwestern), Liberal Bias Makes Law Schools Bad For Democracy
3. Tax Revenues From Legalization Of California Pot Sales Are 34% Below Projections
4. The Best Legal Education Articles Of 2018
5. GAO: The IRS Has 4,500 Guns, 5,000,000 Rounds of Ammunition
6. SEALS Launches Law Faculty Recruitment Conference As Alternative To AALS Meat Market: Earlier, Cheaper, And More Inclusive
7. Tax And The Basis Of Sex (Plus My Connection To RBG)
8. The Ten Law Schools With The Highest Non-JD Enrollment
9. The Ten Most Popular Tax Articles Of 2018
10. Charity Scott (Georgia State), Mindfulness: A Path To Well-Being And Balance For Lawyers And Law Students

Government Shutdown Leaves Law Student Externs Scrambling

National Law Journal, Government Shutdown Leaves Law Student Externs Scrambling:

Hundreds of law students across the country who expected to extern this semester at federal agencies now find themselves in limbo amid the nearly three-week-old partial government shutdown.

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Syracuse's Inaugural Hybrid Online JD Class Has Higher LSAT Scores Than Its Brick-And-Mortar 1L Class

Following up on my previous posts:

• ABA Approves Online JDs At Syracuse, Southwestern (Feb. 14, 2018)
• Syracuse Law School's New Hybrid J.D.: 75% Online, 25% Residential/Externships (Feb. 22, 2018)

Law.com, Syracuse's New Online JD Portends Popularity of Hybrid Programs:

Syracuse University College of Law this week kicked off its hybrid Juris Doctor program in which students complete the bulk of their coursework online—only the second such program in the nation approved by the American Bar Association.

The inaugural cohort of Syracuse’s JDinteractive program comprises 32 students selected from a pool of 241 applicants. The online students were subject to the same admissions standards as applicants to Syracuse’s residential program, and in fact the LSAT scores of the first admitted online class were higher than those of the residential students, said Nina Kohn, associate dean for online education at the school.

The high interest in Syracuse’s new hybrid bodes well for other schools with plans to break into online J.D.s. (Many law schools already offer LL.M.s, Masters in Law, and certificates online, but schools have experienced more barriers to obtain accreditation of online J.D.s, because of the ABA’s 30-credit limit on distance education.) Like Syracuse, Southwestern Law School and the University of Dayton School of Law have received variances from the ABA to offer those hybrid J.D.s that exceed the 30-credit limit, but those two programs aren’t due to launch until August. Still other schools have or plan to add hybrid programs that work within the existing 30-credit limitation by incorporating more on-campus time.

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The Impact Of Tax Reform On Home Ownership And Children

Margaret Ryznar (Indiana-Indianapolis) & Ryan Shouse, Tax Reform on Homeownership and the Impact on Children, 161 Tax Notes 211 (Oct. 8, 2018):

This article discusses several homeownership provisions modified by the Tax Cuts and Jobs Act, and how they affect children.

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Expanded Worldwide Versus Territorial Taxation After The TCJA

This week, David Elkins (Netanya) reviews a new work by J. Clifton Fleming (BYU), Robert J. Peroni (Texas) & Stephen E. Shay (Harvard), Expanded Worldwide Versus Territorial Taxation after the TCJA, 161 Tax Notes 1173 (Dec. 3, 2018).

Like individuals who are citizens or residents of the United States, domestic corporations must report and pay U.S. tax on their worldwide income. However, exposure to U.S. worldwide taxation has always been more theoretical than real. Because under the Code corporate residence is determined almost exclusively by place of incorporation, avoiding U.S. tax on foreign-source earnings usually requires nothing more than operating abroad via a subsidiary registered in a foreign jurisdiction. As a foreign corporation, the subsidiary is liable for U.S. tax only on its U.S.-source income. This arrangement does not allow domestic corporations to completely escape tax on their foreign-source earnings. When the foreign subsidiary distributes its earnings to its domestic parent or when the domestic parent sells shares in the foreign subsidiary, the gain is in principle subject to U.S. tax. Thus, prior to the enactment of the 2017 Tax Cuts and Jobs Act (TCJA), the U.S. international corporate tax regime was in practice one of deferral.

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Weekly Legal Education Roundup

• ABA Journal, How Are Law Schools Using Virtual Reality Tools in Classrooms?
• Above the Law, The California Bar Exam Pass Score Should Remain The Second Highest In The Land
• Pam Armstrong (Albany), Getting Students Out of Their Own Heads – Moving More Toward Justice Oriented Learning
• Teresa Stanton Collett (St. Thomas), A Catholic Perspective on Law School Diversity Requirements

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Tax Policy In The Trump Administration

• Bloomberg, For a Real-World Example of Ocasio-Cortez’s Tax Proposal, Look to Sweden
• Bloomberg, For Tax Purposes, ‘the Rich’ Are People Who Earn More Than You Do
• Bloomberg, From TSA to Tax Refunds: Tracking the Impact of the Government Shutdown
• Bloomberg, The Democrats’ Latest Idea on Taxes Will Only Help Trump

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Associate Feedback: There's An App For That

Law.com, Cleary Launches New Feedback App for Associates:

As law firms work to develop new systems to coach and mentor their junior talent, Cleary Gottlieb Steen & Hamilton has launched an app that puts its associates in the driver’s seat and allows them to push for feedback when they want it.

is a tech-based platform that allows associates to request an informal feedback session with senior lawyers from an app located on their desk site. The app, which was launched earlier this month in its New York office, then blocks out time for these sessions on the lawyers’ respective calendars.

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Revisiting The California Bar Exam Cut Score

TaxProf Blog op-ed:  Revisiting the California Bar Exam Cut Score, by Mitchel L. Winick (President &  Dean, Monterey College of Law):

The traditional arguments in favor of maintaining an artificially high minimum passing score for the California Bar Exam seem so easy to defend. In the name of “public protection” we should require that the state only license the smartest and most capable lawyers. After all, how can “dumbing down the test” be in the best interest of the public or the profession? But these so-called policy arguments, seemingly righteous, lofty, and logical, do not reflect the actual legal questions that need to be asked. The licensing standard for passing the California bar exam should be a cut score that reflects the reasonable threshold for the “minimum qualifications for the first year practice of law.” This standard is well established by the Court and the Committee of Bar Examiners. Therefore, the legal question is whether the result of continuing to use 1440 as the minimum passing score in California meets the required licensing standard. Enforcing the appropriate standard serves a critical role in protecting the public, providing access to justice, and supporting diversity of the bench and bar.

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2019 Tax Trends

Tax Foundation, Tax Trends Heading Into 2019:

1. State tax changes are not made in a vacuum. States often adopt policies after watching peers address similar issues. Several notable trends in tax policy have emerged across states in recent years, and policymakers can benefit from taking note of these developments.
2. The enactment of the federal Tax Cuts and Jobs Act (TCJA) expanded many states’ tax bases and drove deliberations on tax conformity. At year’s end, only five states conform to an older version of the federal tax code, though many have yet to resolve issues raised by their tax conformity regimes.
3. Several states experimented with mechanisms to allow their high-income taxpayers to avoid the new cap on the state and local tax (SALT) deduction, efforts cast into doubt–though not entirely ended–by draft U.S. Treasury regulations.
4. Three states and the District of Columbia cut corporate taxes in 2018, with rate reductions pending in two other states. Reductions in other taxes on capital are ongoing as well, with Mississippi beginning the phaseout of its capital stock tax.
5. The U.S. Supreme Court’s Wayfair v. South Dakota decision ushered in a new era of sales taxes on e-commerce and other remote sales, but many states have yet to implement the provisions the Court strongly suggested would protect such tax regimes from future legal challenges.
6. A second state (Arizona) adopted a constitutional amendment banning the expansion of the sales tax to additional services, with similar efforts–which have the effect of locking an outdated sales tax base in place–expected to emerge in other states in 2019 and beyond.
7. A court ruling has states scrambling to legalize and tax sports betting, while shifting public attitudes continue to render the legalization and taxation of marijuana an attractive revenue option in a growing number of states. In 2018, seven states adopted sports betting taxes, while two legalized and taxed marijuana.
8. States continue to grapple with the appropriate taxation, if any, of e-cigarettes, with two states adopting taxes at rates reflective of vapor products’ potential for harm reduction, while the District of Columbia increased its tax to a punitive 96 percent rate.
9. Business head taxes came out of nowhere to become a key consideration for several cities, particularly those with thriving tech sectors.
10. Consideration of gross receipts taxes continue as corporate income tax revenues decline, though concerns about their economic effects have generally helped stave off their adoption.
11. Two states repealed their estate taxes in 2018, continuing a decade-long trend away from taxes on estates and inheritances.
12. Revenue triggers, a relatively modern innovation, again featured prominently in tax reform packages and will continue to do so. 

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The Bar Exam Of The Future Offers Plenty To Be Excited About

Texas Lawyer, The Bar Exam of the Future Offers Plenty to Be Excited About:

A new era is on the horizon for Texas law graduates taking the bar exam—but many current and prospective law students might not know anything about it.

The Texas Supreme Court has approved a recommendation to replace the Texas bar exam with the Uniform Bar Examination, effective in February 2021. It’s a big deal, because reciprocity will allow graduates to transfer UBE scores to 34 other states. Another perk is the fewer topics and essay questions than the existing Texas bar exam. ...

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North Carolina's Nonprofit Property Tax Exemption Conundrum

Thomas A. Kelley (North Carolina) & Christopher B. McLaughlin (North Carolina), North Carolina's Nonprofit Property Tax Exemption Conundrum, 96 N.C. L. Rev. 1769 (2018):

Disputes between nonprofit organizations and local governments over property tax exemptions have been on the increase in North Carolina and beyond. There are two paramount reasons. First, since the Reagan Revolution of the 1980s eliminated block grants and other sources of funding, local governments have struggled to pay their bills and have been compelled to look for new sources of revenue, including stricter application of property tax laws. Second, the nonprofit sector has been transformed by the rise of social entrepreneurship. Responding to the same financial pressures that have squeezed local governments since the 1980s, increasing numbers of nonprofit organizations have adopted feegenerating strategies that, in some cases, make them almost indistinguishable from for-profit enterprises. For local governments, the fact that some nonprofits act like for-profits makes it easier to claim that they do not deserve generous property tax exemptions.

The result is a property tax conundrum in North Carolina and beyond. Is it fair that governments’ financial books should be balanced on the backs of legitimate charities just because their operations include entrepreneurial elements? On the other hand, how are local governments supposed to fund needed services if they cannot collect taxes on property used for seemingly commercial activities?

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The Tax Lawyer Publishes New Issue

The Tax Lawyer has published Vol. 72, No. 1 (Fall 2018):

• ABA Tax Section, Recommendations for the 2018-2019 Department of the Treasury and Internal Revenue Service Priority Guidance Plan Related to the Act, 72 Tax Law. 1 (2018)
• ABA Tax Section, Second Set of Recommendations for the 2018-2019 Department of the Treasury and Internal Revenue Service Priority Guidance Plan, 72 Tax Law. 15 (2018)
• ABA Tax Section, Comments on the Tax Treatment of Hard Forks, 72 Tax Law. 27 (2018)

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Locating Affordable Housing: The Legal System's Misallocation Of Subsidized Housing Incentives

Brandon Weiss (UMKC), Locating Affordable Housing: The Legal System's Misallocation of Subsidized Housing Incentives, 70 Hastings L.J. 215 (2018):

The primary goal of subsidized housing policy in the United States is to increase access to affordable housing for low-income households. Yet data show that states disproportionately award low-income housing tax credits to finance the development of projects in neighborhoods where there is already a relatively high number of housing units available at similar rent levels. Through a fifty-state study of state housing agency allocation rules, this Article evaluates the legal apparatus that facilitates this “misallocation problem.” I find that approximately seventy-five percent of states fail to make the provision of below-market rents a threshold requirement of receiving an award of low-income housing tax credits. As a result, locational choices often are dictated by private developers who are incentivized to develop where land is cheapest. I argue that states should revise their allocation rules to ensure that, as a default, tax credits are awarded to projects that offer at least a ten percent rent advantage as compared to the local private market.

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Anderson: The GRE Movement in U.S. Law Schools

Robert Anderson (Pepperdine), The GRE Movement in U.S. Law Schools:

The latest reporting over at TaxProf indicates that the number of law schools accepting the GRE has grown to 34. The movement toward the GRE has been somewhat slow, in part because the ABA has dragged its feet in allowing wholesale use of the test under Standard 503. As it stands, the ABA position is that each law school needs to conduct its own study of the validity and reliability of the GRE before using the test for admission. 

That position doesn't make any sense.  The GRE's reliability is well established and is not specific to where it's used (law school versus other graduate school). The validity of the GRE for predicting law school performance is clear and has been demonstrated in every law school study publicly available to date. I have personally analyzed data related to the validity of the GRE for law school admission. There is overwhelming evidence that it is as good a predictor as the LSAT for law school performance.

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Colinvaux: Taking State Tax Benefits Into Account For Charitable Deduction Purposes

Roger Colinvaux (Catholic), Failed Charity: Taking State Tax Benefits into Account for Purposes of the Charitable Deduction, 66 Buff. L. Rev. 779 (2018):

The Tax Cuts and Jobs Act (TCJA) substantially limited the ability of individuals to deduct state and local taxes (SALT) on their federal income tax returns. Some states are advancing schemes to allow taxpayers a state tax credit for contributions to a charity controlled by the state. The issue is whether state tax benefits are deductible as a charitable contribution for purposes of the federal income tax. Under a general rule of prior law — the full deduction rule — state tax benefits were ignored for purposes of the charitable deduction. If the full deduction rule is applied to the state workaround schemes, then the SALT limitation can successfully be avoided. This Article explains that after the TCJA, the legal basis for the full deduction rule is undermined.

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How Law Schools Are Using Virtual Reality In The Classroom

ABA Journal, How Are Law Schools Using Virtual Reality Tools in Classrooms?:

This past summer at the University of North Texas Dallas College of Law, a small team of law students and school employees created a virtual reality crime scene. There was blood made of ketchup, a stapler, handprints and of course, a dead body. Using a 360-degree camera, the team staged an imaginative crime scene.

“It was an experiment at the request of a criminal law professor,” says Jennifer Wondracek, director of legal educational technology at the school. “We did it low-budget because we were trying it out.” The professor liked it, Wondracek says, and asked for another that could be used to supplement classroom material.

In fact, Wondracek says her department is ready to do a lot more, including re-creating actual crime scenes for the school’s criminal law classes.

And perhaps it won’t stop there.

Virtual reality technology has the potential to transform the law school experience. “We are at the beginning of what I think is going to be a revolution in the way we train our students,” Wondracek says. “We are right at the edge with virtual reality technology in both the law school setting and the legal profession.”

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Tax Revenues From Legalization Of California Pot Sales Are 34% Below Projections

Los Angeles Times, One Year of Legal Pot Sales and California Doesn’t Have the Bustling Industry It Expected. Here’s Why:

When Californians voted in 2016 to allow the sale of recreational marijuana, advocates of the move envisioned thousands of pot shops and cannabis farms obtaining state licenses, making the drug easily available to all adults within a short drive.

But as the first year of licensed sales comes to a close, California’s legal market hasn’t performed as state officials and the cannabis industry had hoped. Retailers and growers say they’ve been stunted by complex regulations, high taxes and decisions by most cities to ban cannabis shops. At the same time, many residents are going to city halls and courts to fight pot businesses they see as nuisances, and police chiefs are raising concerns about crime triggered by the marijuana trade.

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The Need For Better Eligibility Regulations In The Public Service Loan Forgiveness Program

Gregory Crespi (SMU), The Public Service Loan Forgiveness Program: The Need for Better Eligibility Regulations, 66 Buff. L. Rev. 819 (2018):

People will start seeking tax-exempt debt forgiveness under the Public Service Loan Forgiveness (“PSLF”) program in October of 2017 after satisfying the requirements of 10 years of post-October 1, 2007 employment in a “public service job.” I estimate that eventually 200,000 people a year or more will obtain debt forgiveness under this program, at a total cost to the Treasury of $12 billion/year or more. Estimates are that up to one-quarter of all employment will qualify as a public service job.

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GAO: The IRS Has 4,500 Guns, 5,000,000 Rounds of Ammunition

Government Accountability Office, Purchases and Inventory Controls of Firearms, Ammunition, and Tactical Equipment (GAO-19-175) (Dec 13, 2018):

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Brennan Presents Distributed Deferral Today At Toronto

Thomas J. Brennan (Harvard) presents Distributed Deferral (with Daniel I. Halperin (Harvard)) at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series:

We show that a current tax on income is equivalent to a future tax levied on both the original income and the investment returns it earns, provided that the tax rate is constant and that neither the taxpayer nor the government is subject to certain investment or borrowing constraints. We then show that instead of deferring a tax to a single future point in time, the tax may be broken into components that are distributed periodically over time. There is not a unique method for distributing deferral, but we introduce examples of particular methods, including a “non-increasing” deferral method that taxes returns to the original income periodically but does not tax the original amount itself until it is no longer invested.

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The Rhetoric and Reality of Small Business Preferences in the 2017 Tax Legislation

Ari D. Glogower (Ohio State), The Rhetoric and Reality of Small Business Preferences in the 2017 Tax Legislation, 16 J. Applied Research & Contemp. Pol’y. 441 (2018):

This Essay describes the gap between the rhetoric and the reality of preferences for small business in the 2017 tax legislation. In the effort to shape public opinion on the legislation, proponents frequently highlighted the benefits for small businesses while often eliding the much larger benefits for large businesses and the wealthiest individuals.

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Mindfulness: A Path To Well-Being And Balance For Lawyers And Law Students

Charity Scott (Georgia State), Mindfulness in Law: A Path to Well-Being and Balance for Lawyers and Law Students, 60 Ariz. L. Rev. 635 (2018):

The National Task Force on Lawyer Well-Being has raised strong concerns about the poor state of the mental health and well-being of lawyers and law students across the country. The co-chairs of the Task Force concluded that recent studies’ findings of professional ill health and lack of well-being were incompatible with a sustainable legal profession and raised troubling implications for many lawyers’ basic competence. This Article takes an in-depth look at the relevance of mindfulness for the legal profession and legal education and offers mindfulness as one way to begin to respond effectively to the Task Force’s concerns.

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Zelinsky: Will Congress Penalize Colleges That Increase Tuition?

Edward Zelinsky (Cardozo), Will Congress Penalize Colleges That Increase Tuition?:

Senator Charles Grassley of Iowa will serve as chairman of the Senate Finance Committee during the upcoming 115th Congress. Senator Grassley’s decision to lead the Finance Committee may have important consequences for the nation’s colleges and universities. Grassley, a Republican, has criticized increased tuition charges in the face of the pronounced, tax-free growth of many college endowments.

In light of his prior statements and the current political environment, a Grassley-led Finance Committee may scrutinize higher education endowments. On the committee’s agenda could be legislation aimed at the tax benefits such endowments enjoy and the benefits of tax-exempt entities more generally. ...

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