Hayashi Presents The Federal Architecture of Income Inequality Today At Columbia

Andrew Hayashi (Virginia; Google Scholar) presents The Federal Architecture of Income Inequality at Columbia today as part of its Davis Polk & Wardwell Tax Policy Colloquium hosted by Michael Love:

Income inequality is a national preoccupation, and the public’s imagination is captured by the astronomical incomes of Valley tech billionaires and Greenwich fund managers. But most people do not live in California or Connecticut, and many of the adverse effects of income inequality are local. Our preoccupation with national income inequality comes at the expense of attending to localized inequality and our national focus has potentially pernicious effects as policies that reduce national income inequality can paradoxically increase local income inequality. Using income tax return data, I show how recent proposals for student loan forgiveness and interest payment pauses have this effect.

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St. Louis Symposium: Teaching Immigration Law

Symposium, Teaching Immigration Law, St. Louis U. L.J. 473- 570 (2023): 

• Kevin R. Johnson (UC-Davis), Teaching Racial and Social Justice in the Immigration Law Survey Course, 67 St. Louis U. L.J. 473 (2023) 
• Sabrina Balgamwalla (Wayne State) & Lauren E. Bartlett (St. Louis), Anti-Carceral Theory and Immigration: A View From Two Law School Clinics, 67 St. Louis U. L.J. 491 (2023)
• Philip L. Torrey (Harvard), On Teaching Crimmigration Law, 67 St. Louis U. L.J. 503 (2023)
• Ming Hsu Chen (UC-San Francisco), Teaching Interdisciplinary Perspectives on Citizenship and Immigration, 67 St. Louis U. L.J. 513 (2023)

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Appleby: Taxing Tokens

Andrew D. Appleby (Stetson; Google Scholar), Taxing Tokens, 91 Tenn. L. Rev. __ (2024):

Tokenization began a fundamental transformation of our laws of ownership, but this transformation is curbed by a lag in the laws of taxation. This Article provides the theory and doctrinal tools to mend this disconnect. Tokenization provides a method to prove and transfer ownership of valuable assets such as art, real property, and equity interests in all types of entities. The tokenization process creates a nominal token that represents the legal ownership rights in the underlying asset. The token, and thus the ownership of the underlying asset, can then be verified and transferred in a process that may be more efficient than doing so with the underlying asset directly.

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Hemel & Hamilton: Coordination, Conflict, And The Laws Of Time

Daniel J. Hemel (NYU; Google Scholar) & Matthew Hamilton (Ph.D. Candidate, UC-Berkeley), Coordination, Conflict, and the Laws of Time, in Research Handbook of Law and Time (Frank Fagan & Saul Levmore, eds. 2024): 

The laws of time—the rules and conventions that determine how we organize our calendars and set our clocks—play a central but often underappreciated role in structuring our daily rhythms and social interactions. This chapter explores the evolution of the laws of time across countries and across centuries. Drawing from the game-theoretic literature on coordination, we present three models—a pure coordination game, an assurance game, and a “Battle of the Sexes” or “Bach/Stravinsky game”—that capture different aspects of time-related lawmaking. We then apply these models to five case studies that evince both coordination and conflict over the laws of time: the transition from the Julian to Gregorian calendar in early modern Europe, the emergence of standard railway time in the 19th century United States, the global adoption of Greenwich Mean Time, the century-long struggle over daylight saving time, and the ongoing controversy over “leap seconds.” These case studies both elaborate and complicate the game-theoretic models, demonstrating the utility and limits of game theory as a framework for understanding complex social phenomena.

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Lederman: Avoiding Scandals Through Tax Rulings Transparency

Leandra Lederman (Indiana-Maurer; Google Scholar), Avoiding Scandals through Tax Rulings Transparency, 50 Fla. St. U. L. Rev. 219 (2023):

In 2014, the International Consortium of Investigative Journalists broke the “LuxLeaks” scandal, revealing numerous tax rulings that the press termed “sweetheart deals” granted to multinational companies. Many countries offer tax rulings because they provide certainty to taxpayers and the government on the tax consequences of a planned transaction. Yet, secrecy that is followed by leaks and criticism is a recurring aspect of these rulings, both in the United States and Europe.

LuxLeaks, which revealed secret rulings from the small European country of Luxembourg, was international headline news. It helped trigger widespread reforms. Tax authorities, including those of European countries and the United States, now automatically share information about cross-border advance rulings with other countries’ tax authorities. But Luxembourg’s tax rulings otherwise remain confidential. The United States treats a type of tax ruling, the Advance Pricing Agreement (APA), similarly: it exchanges information about APAs with other countries but does not otherwise disclose them.

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Howard Law School, Race, And Peer Rankings: The Increasing Correlation Between Racial Salience And Preferential Rankings

Michael Conklin (Angelo State; Google Scholar), Howard Law School, Race, and Peer Rankings: The Increasing Correlation Between Racial Salience and Preferential Rankings, 59 Willamette L. Rev. 189 (2023):

In 2020, novel research was conducted to measure disparities between the U.S. News & World Report overall rankings and the peer rankings of law schools. The research uncovered a stark outlier in Howard University School of Law, whose peer rank was consistently twenty to forty spots higher than its overall rank. This Article updates the research, adding the most recent 2022 and 2023 rankings data. The updated results show that this disparity has not only persisted but has increased in severity. This pronounced result strengthens one of the potential explanations posited in the original research regarding the role of race in the peer rankings, namely, as racial salience increases in society, so does the unique treatment of Howard, the only ranked HBCU law school. This Article analyzes other potential explanations such as an exceptional law review, effective use of promotional materials, law school location, political ideology preference, notable alumni, professor quality, and unwillingness to game the system, which may contribute to the disparity but fall far short of being able to explain its magnitude.

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Bearer-Friend: Paying For Reparations—How To Capitalize A Multi-Trillion Reparations Fund

Jeremy Bearer-Friend (George Washington; Google Scholar), Paying for Reparations: How to Capitalize a Multi-Trillion Reparations Fund, 67 How. L.J. __ (2024):

This Article proposes a novel approach to capitalizing a reparations fund worth trillions of dollars. Under the proposal, publicly-traded firms on U.S. exchanges would be required to remit shares of corporate equity to a reparations trust fund in lieu of cash tax payments. Under the terms of this proposal, our federal government could successfully capitalize a multi-trillion reparations fund in less than a year.

The primary contribution of this Article is to offer a unique financing structure for reparations—a national effort expected by all estimates to require trillions of dollars. The Article describes the features of the in-kind tax proposal, the myriad design choices that would be necessary to ensure effective implementation, and its analogs in the private sector for capitalizing a fund. The Article also evaluates the limitations of an in-kind tax proposal, ultimately concluding that in-kind remittance remains preferable to other tax policy options.

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Christians & Magalhães: The Case For Taxing Away Unsustainable Profits

Allison Christians (McGill; Google Scholar) & Tarcísio Diniz Magalhães (Antwerp; Google Scholar), The Case for Taxing Away Unsustainable Profits, 91 Geo. Wash. L. Rev. 697 (2023): 

When businesses offload environmental and social costs on the public, the resulting profits are windfalls extracted from current and future taxpayers. Prevailing regulatory and tax remedies have not only failed to eliminate such profiteering, but they have in fact incentivized it. To prevent some from receiving windfalls while everyone else bears the costs, profits can be distinguished between sustainable profits, when costs are internalized, and unsustainable profits, when costs are externalized. While the former would remain subject to the traditional corporate income tax, the latter should be completely taxed away with a surtax. A viable way to achieve this is to combine advanced mechanisms for measuring environmental and social damage across supply chains with classic and emerging legal techniques for differentiating categories of income for tax purposes. 

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Combining Businesses And Their Ownership: The Case For Uniform Nonrecognition Under The Internal Revenue Code

Anthony P. Polito (Suffolk), Combining Businesses and Their Ownership: The Case for Uniform Nonrecognition under the Internal Revenue Code:

If a juridical entity that conducts a bona fide business is absorbed entirely into another juridical entity that also conducts a bona fide business, and the equity holders of the absorbed business receive nothing but equity in the absorbing entity in the transaction, and the equity holders of the absorbing entity retain in form exactly the same legal entitlements as before the transaction, no tax consequences should be triggered with respect to the gain or loss accrued with respect to either the business assets or the equity interests involved.

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BLT: Can Large Language Models Handle Basic Legal Text?

Andrew Blair-Stanek (Maryland; Google Scholar), Nils Holzenberger (Institut Polytechnique de Paris) & Benjamin Van Durme (Johns Hopkins; Google Scholar), BLT: Can Large Language Models Handle Basic Legal Text?:

We find that the best publicly available LLMs like GPT-4 and PaLM 2 currently perform poorly at basic text handling required of lawyers or paralegals, such as looking up the text at a line of a witness deposition or at a subsection of a contract. We introduce a benchmark to quantify this poor performance, which casts into doubt LLMs' current reliability as-is for legal practice. Finetuning for these tasks brings an older LLM to near-perfect performance on our test set and also raises performance on a related legal task. This stark result highlights the need for more domain expertise in LLM training.

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Blank & Osofsky: Democratic Accountability And Tax Enforcement

Joshua D. Blank (UC-Irvine; Google Scholar) & Leigh Osofsky (North Carolina; Google Scholar), Democratic Accountability and Tax Enforcement, 61 Harv. J. on Legis. ​__ ( 2024): 

One of the most powerful charges that can be leveled against the IRS is that it is targeting taxpayers. Charges of political targeting have dogged the IRS for over a century, including in major controversies such as the so-called Tea Party auditing scandal in 2013. Commentators and scholars have long-critiqued the IRS for focusing audit resources on some of the lowest-income Americans. And, most recently, a group of researchers estimated that the IRS audits Black taxpayers at a 2.9 to 4.7 times greater rate, as compared to non-Black taxpayers. 

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Joondeph: Remote Work And State Taxation Of Nonresident Employees

Bradley W. Joondeph (Santa Clara), Remote Work and the State Taxation of Nonresident Employees, 2023 Wis. L. Rev. 873:

The onset of the COVID-19 pandemic caused millions of Americans to telecommute across state lines. In response, several states deemed the salaries of employees who had previously worked at workplaces in the state to be “sourced” temporarily to that state. Some rival states contended this was unconstitutionally extraterritorial and sought to file an original complaint at the Supreme Court. Ultimately, the justices declined to hear New Hampshire v. Massachusetts, leaving the issue to be litigated by individual taxpayers.

This article explains why such sourcing rules are constitutional.

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The Top Five New Tax Papers

There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #4. The #1 paper is #1,257 among 17,872 tax papers in all-time downloads.

1. [612 Downloads]  Efficiency vs. Welfare in Benefit-Cost Analysis: The Case of Government Funding, by Zachary Liscow (Yale; Google Scholar) & Cass Sunstein (Harvard; Google Scholar)
2. [587 Downloads]  Common Sense Recommendations for the Application of Tax Law to Digital Assets, by Linda Beale (Wayne State) et al.
3. [400 Downloads]  Loss Harvesting or Gain Deferral? A Surprising Source of Tax Benefits of Tax-Aware Long-Short Strategies, by Stanley Krasner & Nathan Sosner (AQR Capital Management)
4. [300 Downloads]  Complying with BEPS Substance Requirements Through Remote Personnel: Business Profit Allocation, the PPT and ATAD 3, by Aitor Navarro (Max Planck; Google Scholar)
5. [261 Downloads]  Moore, The 16th Amendment, And The Underpinnings Of The TCJA’s Deemed Repatriation Provision, by Christopher Hanna (SMU)

Weekly SSRN Tax Article Review And Roundup: Kim Reviews Cui’s The Mirage Of Mobile Capital

This week, Young Ran (Christine) Kim (Cardozo; Google Scholar) reviews Wei Cui (British Columbia; Google Scholar), The Mirage of Mobile Capital (May 7, 2023).

Over two years have passed since more than 140 countries signed the OECD's global tax deal, consisting of two Pillars, in October 2021. Pillar One is focused on expanding source country taxing rights on the income of large multinational enterprises (MNEs). It targets digital companies such as Facebook or Google that can extract profits from a source jurisdiction without a physical presence. The implementation of Pillar One remains uncertain. Nonetheless, the global minimum tax in Pillar Two is expected to be implemented globally soon. A popular narrative about Pillar Two endorsed by many scholars, including myself here, is as follows: Pillar Two and its global minimum tax embrace the ideal of corporate tax harmonization to combat the tax competition that has dominated international taxation since the advent of globalization in the 1980s. 

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Next Week’s Tax Workshop

Thursday, December 7: Andrew Hayashi (Virginia; Google Scholar) will present The Federal Architecture of Income Inequality as part of the Columbia Davis Polk & Wardwell Tax Policy Colloquium. If you would like to attend, please contact Michael Love.

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Osofsky Reviews The Inflation Reduction Act's Impact On Tax Compliance—And Fiscal Sustainability, By Sarin & Mazur

Leigh Osofsky (North Carolina; Google Scholar), Estimating the Return on Investment in the IRS (JOTWELL) (reviewing Natasha Sarin (Yale; Google Scholar; Former Counselor on Tax Policy, U.S. Treasury Department) & Mark Mazur (Former Assistant Secretary for Tax Policy, U.S. Treasury Department), The Inflation Reduction Act's Impact on Tax Compliance—and Fiscal Sustainability (2023):

In the Inflation Reduction Act, Congress made a monumental investment in the IRS, reversing a decades-long trend of inadequate funding. A critical question is: how much was this investment worth? Government scorekeepers came up with a number of about $200 billion (yielding a $120 billion net amount, after taking into account the cost of the increased funding). But, in a new paper, The Inflation Reduction Act’s Impact on Tax Compliance—and Fiscal Sustainability, Natasha Sarin and Mark Mazur argue that these official estimates significantly understate the return on investment in the IRS. They estimate that the funding would enable the IRS to raise at least $560 billion ($480 billion, net) over the next ten years, and that, depending on taxpayers’ behavioral response, it is possible the return may actually be closer to $1 trillion.

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A Blueprint To Reclaim Legal Education From U.S. News

Scott Rempell (South Texas), A Blueprint to Reclaim Legal Education from U.S. News:

The U.S. News & World Report (“U.S. News”) law school rankings impact the perceptions and behaviors of everyone in the rankings ecosystem, from law school administrators and law professors to prospective students and legal employers. Despite decades of near universal condemnation, these ordinal rankings continue to significantly influence the legal education market, often in highly detrimental ways.

This Article presents a blueprint for how the law school community can reclaim legal education from U.S. News. The blueprint concerns the features of an alternative product that would deliver substantial value in an efficient manner. Regulators like the ABA would have to play a role because they can mandate the types and forms of data that law schools produce. The alternative product should include data categories that consumers would find helpful based on the reasons why various constituencies assess information about law schools to begin with. A comprehensive set of relevant data points is necessary, but not sufficient. The relevant information must be presented through an easy-to-navigate interface that allows consumers to efficiently acquire, arrange, and internalize the data to meet their objectives.

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Changes In The Distribution Of Black And White Wealth Since The Civil War

Ellora Derenoncourt (Princeton University), Chi Hyun Kim (University of Bonn), Moritz Kuhn (University of Mannheim) & Moritz Schularick (Sciences Po Paris), Changes in the Distribution of Black and White Wealth since the US Civil War, 37 J. Econ. Persp. 71 (2023):

The difference in the average wealth of Black and white Americans narrowed in the first century after the Civil War, but remained large and even widened again after 1980. Given high levels of wealth concentration both historically and today, dynamics at the average may not capture important heterogeneity in racial wealth gaps across the distribution.

This paper looks into the historical evolution of the Black and white wealth distributions since Emancipation. The picture that emerges is an even starker one than racial wealth inequality at the mean. Tracing, for the first time, the evolution of wealth of the median Black household and the gap between the typical Black and white household over time, we estimate that the majority of Black households only began to dispose of measurable wealth around World War II. While the civil rights era brought substantial wealth gains for the median Black household, the gap between Black and white wealth at the median has not changed much since the 1970s. The top and the bottom of the wealth distribution show even greater persistence, with Black households consistently over-represented in the bottom half of the wealth distribution and under-represented in the top-10 percent over the past seven decades.

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SSRN Tax Professor Rankings

SSRN has updated its monthly ranking of 750 American and international law school faculties and 3,000 law professors by (among other things) the number of paper downloads from the SSRN database.  Here is the new list (through November 1, 2023) of the Top 25 U.S. Tax Professors in two of the SSRN categories: all-time downloads and recent downloads (within the past 12 months):

		All-Time			Recent
1	Reuven Avi-Yonah (Michigan)	226,070	1	Jonathan Choi (USC)	23,226
2	Daniel Hemel (NYU)	131,630	2	Kristin Hickman (Minnesota)	14,591
3	Dan Shaviro (NYU)	127,622	3	Amy Monahan (Minnesota)	13,483
4	Lily Batchelder (NYU)	127,324	4	Reuven Avi-Yonah (Michigan)	11,588
5	David Gamage (Indiana-Maurer)	126,793	5	David Gamage (Indiana-Maurer)	4,336
6	Darien Shanske (UC-Davis)	118,839	6	Bridget Crawford (Pace)	4,225
7	David Kamin (NYU)	114,326	7	Daniel Hemel (NYU)	4,021
8	Cliff Fleming (BYU)	108,470	8	Louis Kaplow (Harvard)	3,777
9	Manoj Viswanathan (UC-SF)	104,876	9	Kyle Rozema (Northwestern)	3,765
10	Ari Glogower (Northwestern)	104,363	10	D. Dharmapala (UC-Berkeley)	3,470
11	Rebecca Kysar (Fordham)	103,932	11	Steve Black (Texas Tech)	3,435
12	D. Dharmapala (UC-Berkeley)	51,828	12	Darien Shanske (UC-Davis)	3,307
13	Michael Simkovic (USC)	48,652	13	Ruth Mason (Virginia)	3,305
14	Louis Kaplow (Harvard)	41,632	14	Kim Clausing (UCLA)	3,263
15	Paul Caron (Pepperdine)	41,584	15	Robert Sitkoff (Harvard)	3,085
16	Richard Ainsworth (Boston University)	38,832	16	Zachary Liscow (Yale)	2,987
17	Bridget Crawford (Pace)	37,867	17	Brad Borden (Brooklyn)	2,907
18	Robert Sitkoff (Harvard)	33,292	18	Richard Ainsworth (Boston University)	2,873
19	Brad Borden (Brooklyn)	31,702	19	Brian Galle (Georgetown)	2,490
20	Ruth Mason (Virginia)	30,891	20	Young Ran (Christine) Kim (Cardozo)	2,446
21	Vic Fleischer (UC-Irvine)	30,312	21	Ellen Aprill (Loyola-L.A.)	2,361
22	Ed Kleinbard (USC)	29,821	22	Dan Shaviro (NYU)	2,280
23	Jim Hines (Michigan)	28,559	23	Lily Batchelder (NYU)	2,134
24	Kim Clausing (UCLA)	27,939	24	John R. Brooks (Fordham)	2,094
25	Richard Kaplan (Illinois)	27,476	25	David Weisbach (Chicago)	2,071

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Satterthwaite Reviews Bearer-Friend's Colorblind Tax Enforcement

Emily Satterthwaite (Georgetown; Google Scholar), Beyond Audits: Investigating the Role of Race in Various Tax Enforcement Settings (JOTWELL) (reviewing Jeremy Bearer-Friend (George Washington; Google Scholar), Colorblind Tax Enforcement, 97 NYU L. Rev. 1 (2022)):

Following the January release of a groundbreaking study by Hadi Elzayn, Robin Fisher, Jacob Goldin, Thomas Hertz, Daniel E. Ho, Arun Ramesh, and Evelyn Smith and the resulting media, Congressional, and IRS attention, it is now well-known that Black taxpayers are audited at rates three to five times the rates of non-Black taxpayers. The audit study is a landmark both for its results (which contradict past IRS statements) and also for its novel methodology, which uses individually-estimated taxpayer race probabilities to obtain informative bounds on the racial audit rate disparity. In addition to illuminating problematic patterns in current IRS audit selection procedures, the study’s methodology offers promise for the future in investigating other race-based patterns in tax enforcement.

In what non-audit enforcement areas might such patterns arise? Here is where the prescient work of Jeremy Bearer-Friend (as cited in the audit study, P. 41) comes in, building on the work of other scholars working at the intersection of race and tax. In “Colorblind Tax Enforcement,” Bearer-Friend refutes on first principles the now-debunked claim that because the IRS does not collect race data, it cannot discriminate by race when enforcing tax laws. He points out that, for IRS agents, making inferences about the race of a taxpayer on the basis of the information provided on the return (names of taxpayer, spouse, and children, address including zip code, family structure, and occupation) is plausible and probable: “[e]ach of these datapoints can lead to inferences of racial identity in the mind of the relevant IRS personnel, with the combination of data points creating a stronger likelihood of inference” (P. 19). Moreover, at many points in the enforcement process there are telephonic or in-person conferences that allow for further racial inferences. ...

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Avi-Yonah Posts Two International Tax Papers On SSRN

Reuven Avi-Yonah (Michigan; Google Scholar) has posted two international tax papers on SSRN:

The First US Tax Treaty and Its Influence: 

This paper discusses the first US tax treaty concluded with France in 1932 and ratified in 1935. This treaty is interesting because it follows the League of Nations model of 1928 but with significant differences. It is also a treaty between a global jurisdiction and (at the time) a purely territorial one. This meant that while reductions in French taxes benefited the US fisc because they resulted in lower foreign tax credits (but the overall tax level was the same), French investors into the US could derive some types of income (e.g., royalties) without any tax being imposed by either country. This may also explain why the treaty was more limited in scope than the League of Nations model. But the main importance of the treaty is because it is the first ever appearance of the Arms Length Principle in international tax, which had a profound influence.

The UTPR Reconsidered: A Response to Fadi Shaheen: 

In a letter to the editor [Much Ado: Why the United States Should Calm Down About DSTs], 181 Tax Notes Fed. 1235 (Nov. 13, 2023)], Reuven S. Avi-Yonah rebuts criticism of the UTPR that Fadi Shaheen made in a recent article [Is the UTPR a 100 Percent Tax on a Deemed Distribution?, 181 Tax Notes Fed. 481 (Oct. 16, 2023)].

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Fox Presents Who Benefits From Corporate Tax Cuts?: Evidence From Banks And Credit Unions Around The TCJA At NYU And Columbia This Week

Edward Fox (Michigan; Google Scholar) presents Who Benefits from Corporate Tax Cuts?: Evidence from Banks and Credit Unions around the TCJA (with Benjamin Pyle (Boston University; Google Scholar)) at NYU today as part of its Tax Policy and Public Finance Colloquium hosted by Daniel Shaviro and at Columbia on Thursday as part of its Davis Polk & Wardwell Tax Policy Colloquium hosted by Michael Love::

The TCJA of 2017 made large changes to the taxation of corporate and pass-through businesses in the U.S. Understanding the effects of these changes is complicated by the difficulty of finding control firms whose taxation was not altered by the Act. We study the effect of the TCJA on small and medium size banks using credit unions—which compete with these banks for deposits and in making loans—as a novel control group. Credit unions were not taxed both before and after the Act. Using a difference-in-difference framework, we find that an important fraction of the incidence of the tax cut goes to depositors. We find little evidence that employees or borrowers from banks receive a share of the tax cut in the form of higher wages or lower interest rates on loans or that banks increase their investment in fixed assets as a result of the Act.

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Thorndike: Moores Lean On 1916 Tax Expert To Argue No Realization Means No Income

Joseph J. Thorndike (Tax Analysts), Tax History: Moores Lean on 1916 Tax Expert to Argue No Realization Means No Income, 181 Tax Notes Fed. 1356 (Nov. 20, 2023):

Apparently, Charles G. Moore and Kathleen F. Moore are in thrall to a certain Columbia University economist from the early 20th century. Edwin R.A. Seligman is a big player in Moore v. United States, No. 22-800 — no small feat for a scholar who’s been moldering in a Brooklyn cemetery these past 84 years.

Still, Seligman’s prominence in the Moore case is worthy of note, even if Keynes would have found it predictable. The petitioners have cited Seligman repeatedly, using him to support their claim that unrealized income is not really income at all — at least not as far as the 16th Amendment is concerned.

As well they should: The Moores could hardly have asked for a better historical champion. If you’re trying to argue that the original meaning of the 16th Amendment hinges on the concept of realization, then Seligman is your man.

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Kleiman, Sarkar & Satterthwaite Present Towards An Understanding Of Nannies' Tax Experiences And Preferences Today At Loyola-L.A.

Ariel Jurow Kleiman (Loyola-L.A.; Google Scholar), Shayak Sarkar (UC-Davis; Google Scholar), and Emily Satterthwaite (Georgetown; Google Scholar) present Towards an Understanding of Nannies' Tax Experiences and Preferences at Loyola-L.A. today as part of its Tax Policy Colloquium hosted by Katie Pratt:

Despite their indispensable work, nannies in the U.S. often work long hours for low wages and fear retaliation if they complain about work or pay conditions. Exacerbating this precarity is the fact that many nannies work “off the books” and thus must keep their work secret not only from state and federal tax agencies, but from employment and labor agencies as well. This Article investigates nannies’ preferences for or against formal employment and tax reporting, the reasons behind such preferences, and how such preferences correspond to nannies’ relationships with their employers and with society more broadly. 

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Lesson From The Tax Court: Taxpayers Cannot Invoke The 'Augusta Rule' With Unplayable Lie

In the past few years there have apparently been a lot of excited Tik Tok posts about how closely held businesses can use the “Augusta Rule” to get a double tax benefit: a deduction for the business under §162 and tax free income to the business owner under §280A(g).

In Kunjlata J. Jadhav and Jalandar Y. Jadhav v. Commissioner, T.C. Memo. 2023-140 (Nov. 21, 2023) (Judge Vasquez), the taxpayers get lured by the promise of tax free income under the August Rule into making what turned out to be an unplayable lie on their tax returns.  They did not get a mulligan.  They did get penalties.  The problem was these taxpayers were unable to show that the rental payments their S Corp made to them and their sons were “ordinary and necessary” under §162.  That requirement is not usually a difficult one to meet but when you are trying to play the system, it can be tricky to get through the rough and avoid the hazards to make the hole.

Details below the fold.

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The Top Five New Tax Papers

This week's list of the Top 5 Recent Tax Paper Downloads is the same as last week's list, with some reshuffling of the order within the Top 5. The #1 paper is #1,342 among 17,851 tax papers in all-time downloads.

1. [583 Downloads]  Efficiency vs. Welfare in Benefit-Cost Analysis: The Case of Government Funding, by Zachary Liscow (Yale; Google Scholar) & Cass Sunstein (Harvard; Google Scholar)
2. [574 Downloads]  Common Sense Recommendations for the Application of Tax Law to Digital Assets, by Linda Beale (Wayne State) et al.
3. [370 Downloads]  Loss Harvesting or Gain Deferral? A Surprising Source of Tax Benefits of Tax-Aware Long-Short Strategies, by Stanley Krasner & Nathan Sosner (AQR Capital Management)
4. [252 Downloads]  Moore, The 16th Amendment, And The Underpinnings Of The TCJA’s Deemed Repatriation Provision, by Christopher Hanna (SMU)
5. [248 Downloads]  Pillar One Amount B: Simplifying the Arm's Length Principle for Baseline Distribution Activities (Submission to the OECD/Inclusive Framework on 1 September 2023 in Response to the 12 July 2023 Public Consultation Document on Pillar One Amount B), by Lorraine Eden (Texas A&M; Google Scholar)

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Hanna's Moore, The 16th Amendment, And The TCJA’s Deemed Repatriation Provision

This week, Mirit Eyal-Cohen (Alabama; Google Scholar) reviews Christopher Hanna (SMU), Moore, the Sixteenth Amendment, and the Underpinnings of the Deemed Repatriation Provision, 76 S.M.U. L. Rev. F. 156 (2023).

On June 26, 2023, the Supreme Court in Moore v. United States granted the taxpayer’s petition to hear a rare case involving the constitutionality of section 965 deemed repatriation, a provision that was added by the 2017 Tax Cuts and Jobs Act (“TCJA”). The question at subject is whether the Sixteenth Amendment authorizes Congress to tax unrealized sums under the deemed repatriation clause without apportionment among the states. Under section 965, a U.S. shareholder who owns 10% or more of a deferred foreign income corporation must include its pro rata share of the foreign corporation’s accumulated post-1986 deferred foreign income in its gross income (Subpart F income). The U.S. shareholder’s pro rata share of the foreign corporation’s cash position determines whether that amount is taxed at 8%, 15.5%, or both. 

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Next Week’s Tax Workshops

Monday, November 27: Ariel Jurow Kleiman (Loyola-L.A.; Google Scholar), Shayak Sarkar (UC-Davis; Google Scholar) & Emily Satterthwaite (Georgetown; Google Scholar) will present Towards an Understanding of Nannies' Tax Experiences and Preferences as part of the Loyola-L.A. Tax Policy Colloquium. If you would like to attend, please RSVP here. 

Tuesday, November 28: Edward Fox (Michigan; Google Scholar) will present Who Benefits from Corporate Tax Cuts?: Evidence from Banks and Credit Unions around the TCJA (with Benjamin Pyle (Boston University; Google Scholar)) as part of the NYU Tax Policy and Public Finance Colloquium. If you would like to attend, please contact Daniel Shaviro.  

Thursday, November 30: Edward Fox (Michigan; Google Scholar) will present Who Benefits from Corporate Tax Cuts?: Evidence from Banks and Credit Unions Around the TCJA (with Benjamin Pyle (Boston University; Google Scholar)) as part of the Columbia Davis Polk & Wardwell Tax Policy Colloquium. If you would like to attend, please contact Michael Love. 

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Law Schools: Want To Help Bend The Arc Of The Moral Universe Toward Justice? Hire Law Professors With Public Service Experience.

Rachel Kincaid (Baylor), Law Schools: Want to Help Bend the Arc of the Moral Universe Toward Justice? Hire Law Professors with Public Service Experience, 58 U. Rich. L. Rev. __ (2024):

We are living in momentous times. Social justice and the legitimacy of our political systems are at the forefront of many people’s minds. Demands for change — sometimes revolutionary change — abound, based on myriad crises: the murders of Tyre Nichols, George Floyd, Ahmaud Arbery, and Breonna Taylor; mass incarceration and the criminalization of poverty; the bungled response to COVID-19 and resulting economic precarity of many across the globe; threats to our democratic institutions and educational institutions at home and abroad; the erosion of reproductive rights, the environment, and tribal sovereignty; attacks on LGBTQIA+ people and their rights; and persistent and devastating levels of gun violence, to name a few. During momentous times like these, law schools can and should make a difference. But how we do that is a more complex question. Is it only through career services offices that encourage students to pursue careers fighting for social justice? 

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Houston Business & Tax Law Journal Publishes New Issue

The Houston Business & Tax Law Journal has published Vol. 23 (2022): 

• Keith Fogg (Harvard) & Caitlin Hird (J.D. 2022, Harvard), Pro Se Precedent in the U.S. Tax Court: A Case for Amicus Briefs, 23 Hous. Bus. & Tax L.J. 1 (2022) 
• Julia Salzman (J.D. 2024, Houston), The Limits of "Opportunity": A Three-Pronged Analysis of the Implications of Qualified Opportunity Funds, 23 Hous. Bus. & Tax L.J. 21 (2022) 

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Dan Shaviro's 2023 Holland Medal Acceptance Speech

Daniel Shaviro (NYU; Google Scholar), Talk at National Tax Association Holland Medal Ceremony:

On November 3, 2023, I received the Daniel M. Holland Medal at the 116th Annual Meeting of the National Tax Association. According to the NTA website: “The Holland Medal is the most prestigious award given by the NTA, as it recognizes lifetime achievement in the study of the theory and practice of public finance.” These are the remarks that I made at the Holland Medal ceremony.

Recipients of the Holland Medal (1993-2023):

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Danso Presents Contemporary Perspectives On African Taxation Today At Boston University

Isaac Agyiri Danso (D.Phil. Candidate, Oxford) presents Navigating the African Tax Terrain: Contemporary Perspectives on African Taxation at Boston University today as part of its Just Taxation Workshop hosted by Steven Dean:

African taxation today has been shaped by the complexity of its socio-political and economic history. The contemporary tax architecture in Africa has been shaped significantly by its colonial past.  For instance, colonial era taxes were designed and introduced to extract resources, primarily for the benefit of the colonisers. These exploitative taxes on indigenous populations laid the foundation for widespread scepticism towards taxation among many Africans which persist to today. Today, African taxation reflects a dynamic interplay of these historical legacies, in the ongoing strive to mobilise domestic revenue to finance the continent's development.  

African governments are daring to strike a delicate balance between mobilising domestic resources, reducing aid dependence, and promoting economic growth and equitable development.

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Exclusive Article Submission Window For The Tax Lawyer

The Tax Lawyer is offering an exclusive submission window for articles to be published in the Spring issue of the Tax Lawyer through December 1, 2023. If you’ve got a completed or almost completed draft of an article on any tax issue of 12,000-35,000 words, please submit it to Editor, Publications, at [email protected]. You can also submit via Scholastica if you prefer. Your article will be published by May 2024.

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Schizer Presents How To Save The World In Six Steps — Bringing Out The Best In Nonprofits Today At San Diego

David M. Schizer (Columbia) will be discussing How to Save the World in Six (Not So Easy) Steps: Bringing Out the Best in Nonprofits (2023) at a book event today at San Diego (RSVP here): 

The U.S. has over 1.5 million nonprofits, which touch our lives in countless ways. The finest are inspiring, but unfortunately, too many let us down. Luckily, there’s a solution. How to Save the World in Six (Not So Easy) Steps by expert scholar and nonprofit leader David M. Schizer is the ultimate management book for nonprofit professionals, board members, and donors.

Since the goal of nonprofits is to advance their mission—not to make money—performance can be difficult to assess. Schizer explains how this fundamental challenge makes it harder to expose unwise and self-interested choices, resolve conflicts, and evolve with the times.

In response, nonprofits need to do two challenging things really well: figure out the best way to advance the mission, and then build support for it. With entertaining anecdotes from his many years leading Columbia Law School and international humanitarian organization JDC, as well as interviews with an all-star cast of nonprofit leaders, Schizer explains how to accomplish these twin goals with the “six Ps”:

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Brooks & Gamage Present The Sixteenth Amendment and Congress’s Income Tax Power Today At Loyola-L.A.

John (Jake) Brooks (Fordham; Google Scholar) and David Gamage (Indiana-Maurer; Google Scholar) present “From Whatever Source Derived”: The Sixteenth Amendment and Congress’s Income Tax Power at Loyola-L.A. today as part of its Tax Policy Colloquium hosted by Katie Pratt: 

The upcoming Supreme Court case of Moore v. United States raises questions that the Court has rarely had to address in the last 100 years—what is the meaning of the Sixteenth Amendment and Congress’s income tax power? Does that power only extend to realized income? And what does "realization" mean? The taxpayers in Moore (and the Ninth Circuit judges who dissented from the denial of rehearing en banc) argue that realization is necessarily a part of the meaning of “income” in the Sixteenth Amendment—i.e., that there must be some act of separation or conversion of property into cash or other property in order for there to be “income.” They are, in essence, aiming to revive a disputed reading of the discredited 1920 case of Eisner v. Macomber.

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Lesson From The Tax Court: A Lesson In Pathfinding

I cannot say it enough: the IRS is not an entity.  It’s a vast organization with various offices that perform various functions.  And one key idea is that taxpayers may have multiple paths to get to a successful result.  If one office cannot help you perhaps a different one can.  At the IRS that often means if you cannot get good results in Exam or Collection you might get them in Appeals.  And sometimes you can get to Tax Court from Appeals.  But sometimes not.  It's path dependent as we learn today.

In Rita Renee Pilate v. Commissioner, T.C. Memo. 2023-136 (Nov. 9, 2023) (Judge Gustafson), the IRS was seeking to collect a tax liability.  The taxpayer was able to obtain a CDP hearing.  That path put her in front of the Office of Appeals.  She said she wanted to make an Offer In Compromise (OIC).  But she did not submit one to Appeals as part of the CDP hearing.  She did not choose that path.  After Appeals closed her CDP hearing, Ms. Pilate timely petitioned the Tax Court for review.  She also now submitted an OIC but, since her CDP case had closed, that submission put her on a different path.  The OIC was accepted but a dispute later arose on whether she complied with its terms and Appeals issued a letter defaulting her.  Since her CDP petition was still before the Tax Court, she asked the Court to review the Appeals decision to default her OIC.  The Tax Court said it could not make that review, because an OIC outside of CDP is not on the correct path for judicial review.

Details below the fold.

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The Top Five New Tax Papers

There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #5. The #1 paper is #1,362 among 17,842 tax papers in all-time downloads.

1. [573 Downloads]  Efficiency vs. Welfare in Benefit-Cost Analysis: The Case of Government Funding, by Zachary Liscow (Yale; Google Scholar) & Cass Sunstein (Harvard; Google Scholar)
2. [567 Downloads]  Common Sense Recommendations for the Application of Tax Law to Digital Assets, by Linda Beale (Wayne State) et al.
3. [334 Downloads]  Loss Harvesting or Gain Deferral? A Surprising Source of Tax Benefits of Tax-Aware Long-Short Strategies, by Stanley Krasner & Nathan Sosner (AQR Capital Management)
4. [241 Downloads]  Pillar One Amount B: Simplifying the Arm's Length Principle for Baseline Distribution Activities (Submission to the OECD/Inclusive Framework on 1 September 2023 in Response to the 12 July 2023 Public Consultation Document on Pillar One Amount B), by Lorraine Eden (Texas A&M; Google Scholar)
5. [217 Downloads]  Moore, The 16th Amendment, And The Underpinnings Of The TCJA’s Deemed Repatriation Provision, by Christopher Hanna (SMU)

Lawsky Presents Picturing Capital Gains And Losses Today At Boston College

Sarah Lawsky (Northwestern; Google Scholar) presents Picturing Capital Gains and Losses at Boston College today as part of its Tax Policy Collaborative hosted by James Repetti and Diane Ring:

Formalized statutes become susceptible to a particular kind of formalized reasoning, which can in turn lead to insights about and highlight connections implicit in the statute but obscured by the statute’s complexity. The article focuses, as an example, on reasoning with formalizations of Internal Revenue Code sections related to capital gains and losses. Formalizing these sections reveals an error in the statute that has been generally overlooked by leading treatises and casebooks. Reasoning with formalizations makes it straightforward to show that IRS has corrected this error in its forms and worksheets implementing this law. Moreover, reasoning with formalizations shows that while the IRS forms and worksheets present facially different algorithms than those dictated by the statute, the algorithms the IRS presents are generally faithful to the statute—-and actually improve upon the statute by making technical corrections that are inconsistent with the statute’s (incorrect) language and consistent with the statute’s intent. 

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Next Week’s Tax Workshops

Monday, November 20: John (Jake) Brooks (Fordham; Google Scholar) & David Gamage (Indiana-Maurer; Google Scholar) will present “From Whatever Source Derived”: The Sixteenth Amendment and Congress’s Income Tax Power as part of the Loyola-L.A. Tax Policy Colloquium. If you would like to attend, please contact Katie Pratt. 

Monday, November 20: David M. Schizer (Columbia) will discuss his new book, How to Save the World in Six (Not So Easy) Steps: Bringing Out the Best in Nonprofits (2023), at San Diego. If you would like to attend, please RSVP here. 

Tuesday, November 21: Isaac Agyiri Danso (D.Phil. Candidate, Oxford) will present Navigating the African Tax Terrain: Contemporary Perspectives on African Taxation at Boston University. If you would like to attend, please contact Steven Dean. 

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Tazhitdinova Presents Understanding Capital Gains Responses To Taxes Using Transaction-Level Data Today At Columbia

Alisa Tazhitdinova (UC-Santa Barbara; Google Scholar) presents Understanding Capital Gains Responses to Taxes Using Transaction-Level Data at Columbia today as part of its Davis Polk & Wardwell Tax Policy Colloquium hosted by Michael Love:

We study how individuals' trading behavior responds to tax incentives using administrative transaction-level data on all taxable sales of broker-traded financial assets between 2011 and 2019. Our empirical design leverages a simple, salient, timing-based tax notch: in the U.S., assets held beyond one year qualify for a 10-20% reduction in capital gains rates. The size and granularity of the data allow us to study how this capital gains tax rate differentiation shapes individuals' trading behaviors across narrowly defined demographic and income groups. We find that: (1) retiming responses around the tax rate notch are weak in general; (2) individuals make clear misoptimization errors by realizing gains just before the notch; and (3) this pattern can be explained by both heterogeneous capital gains responses by asset type combined with rigidities in individual trading styles. 

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Lawyering In The Age Of Artificial Intelligence

Jonathan H. Choi (USC; Google Scholar), Amy Monahan (Minnesota; Google Scholar) &  Daniel Schwarcz (Minnesota; Google Scholar), Lawyering in the Age of Artificial Intelligence:

We conduct the first randomized controlled trial of AI assistance’s effect on human legal analysis. We randomly assigned sixty students at the University of Minnesota Law School each to complete four separate legal tasks (drafting a complaint, a contract, a section of an employee handbook, and a client memo), either with or without the assistance of GPT-4, after receiving training on how to use GPT-4 effectively. We then blind-graded the results and tracked how long the students took on each task. We found that access to GPT-4 slightly and inconsistently improved the quality of participants’ legal analysis but induced large and consistent increases in speed. The benefits of AI assistance were not evenly distributed: in the tasks on which AI was the most useful, it was significantly more useful to lower-skilled participants. On the other hand, AI assistance reduced the amount of time that participants took to complete the tasks roughly uniformly regardless of their baseline speed. In follow up surveys, we found that participants reported increased satisfaction from using AI to complete legal tasks and that they correctly predicted the tasks for which GPT-4 would be most helpful. 

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Borden: Refuting The Notion Of A General Holding Period Requirement For Section 1031

Bradley T. Borden (Brooklyn; Google Scholar), Refuting the Notion of a General Holding Period Requirement for Section 1031, 39 Prac. Real Est. Law. 21 (2023):

This article revisits the widely misunderstood issue of whether section 1031 imposes a holding period requirement on property received in a section 1031 exchange or property transferred as part of a section 1031 exchange. The article presents a hypothetical discussion between a property owner and tax advisor to show that the section 1031 qualified-use requirement does not impose a holding period requirement. Suggestions by tax advisors to the contrary appear to be based solely on perceptions of the likelihood of audit or the issue being raised on audit, which factors are prohibited in giving tax advice. 

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Discriminatory Taxes And Congress: Do As I Say, Not As I Do

Laura Snyder (President, Stop Extraterritorial American Taxation (SEAT); Board of Directors, Association of Americans Resident Overseas (AARO)), Discriminatory Taxes and Congress: Do as I Say, Not as I Do, 180 Tax Notes Fed. 1283 (Aug. 21, 2023):

For decades, overseas Americans and others have appealed to Congress to act regarding the U.S. extraterritorial tax system. The long-standing system discriminates against persons of U.S. nationality living outside the United States, subjecting them to a tax regime that is more burdensome and punitive than for persons residing in the United States (of any nationality) and persons residing outside the United States who are not U.S. nationals. But their appeals are disregarded. No action to alleviate the situation has ever been taken (or, with few exceptions, even proposed), and nearly all members of Congress remain silent on the issue.

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Kaplow: Optimal Income Taxation And Charitable Giving

Louis Kaplow (Harvard), Optimal Income Taxation and Charitable Giving, 38 Tax Pol’y & Econ. __ (2024):

The philanthropic sector is highly consequential, particularly in the United States, and the most important policies directed toward this sector are tax policies. Yet most economic analysis of the optimal tax treatment of charitable giving is ad hoc, treating it as a subject unto itself. This article advances a different approach: integrating the tax treatment of charitable giving into the optimal income tax framework that has been developed over the past half century. The results supplement or overturn conventional wisdom. Notably, the analysis of revenue effects and the purported efficiency of subsidies to charitable giving is recast, focusing on the pertinent externalities rather than the direct revenue costs, which themselves are irrelevant in the basic case. Distributive concerns regarding donors are also misplaced because distributive effects can be offset by tax rate adjustments to the broader income tax and transfer system. 

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Climate Change Policy In The International Context: Solving The Carbon Leakage Problem

David A. Weisbach (Chicago; Google Scholar) &  Sam Kortum (Yale; Google Scholar), Climate Change Policy in the International Context: Solving the Carbon Leakage Problem, 31 N.Y.U. Env't L.J. 1 (2023):

Under the Paris Agreement, nations set their own emissions goals and policies. As a result, climate policies vary widely across countries, with some countries imposing stringent emissions policies and others doing very little. A key problem when carbon policies vary across countries is that energyintensive industries can relocate to places with few or no emissions restrictions. Relocated industries would continue to pollute but would be operating in a less desirable location. Moreover, the countries that imposed strict emissions reductions lose the benefit of having those industries located domestically. This problem, known as leakage, is one of the key reasons the United States has failed to enact substantial climate change policies. Without a solution to leakage, it may be much more difficult to prevent catastrophic climate change.

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Graetz: To Avoid The Moore Morass, The Court Should DIG It (Dismiss As Improvidently Granted)

Michael J. Graetz (Columbia), To Avoid the Moore Morass, the Court Should DIG It — But It Probably Won’t, 181 Tax Notes Fed. 1253 (Nov. 13, 2023):

In this article, Graetz examines several of the briefs filed in Moore and argues that regardless of who wins the case, there will be no good outcomes if the Supreme Court holds that realization is a constitutional requirement. This article is based on a presentation on Moore to the International Tax Policy Forum in Washington on October 20. It has been updated to reflect amicus briefs in support of the government that were filed by October 23.

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Catholic University Hosts Symposium Today On Free Speech And Civility in American Law Schools

The Catholic University of America Columbus School of Law hosts a symposium today on Free Speech And Civility in American Law Schools (register): 

8:40 A.M. EST: Welcome

• A.G. Harmon (Catholic University)
• Stephen Payne (Dean, Catholic University) 

8:45 A.M. EST: Causes

• Greg Lukianoff (FIRE), Cultural Changes in Society
• Jonathan Zimmerman (Penn), Institutional Changes in Society and Universities

10:00 A.M. EST: Effects 

• Jennifer Lichter (Catholic University) (moderator) 
• Elizabeth Bartholet (Harvard), Feminism and Free Speech
• Randall Kennedy (Harvard), Free Speech and Race
• Keith Whittington (Princeton; Google Scholar), Academic Freedom and Free Speech

11:30 A.M. EST: Civility and Law Schools and the Effect on the Legal Profession

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Newton Presents Closing the Opportunity Gap Today At Pepperdine

Deanna Newton (Pepperdine) presents Closing the Opportunity Gap at Pepperdine today as part of its Faculty Workshop Series hosted by Jacob Charles: 

Opportunity Zones are low-income areas or economically distressed communities in the United States. The Opportunity Zone program encourages investment in low-income areas or economically distressed communities by offering investors tax benefits. Scholars have found little evidence that Opportunity Zones positively impact zone residents’ lives, concluding that Opportunity Zone legislation mostly benefits wealthy investors and should be reformed to benefit community members better. Investors are currently not required to finance projects geared toward the needs of local communities; they are instead funding developments they would have already invested in, whether located in an Opportunity Zone or not. This Article argues that current reform efforts and related scholarship do not give adequate weight to active and direct participation by community members and investors as it relates to economic development tax incentives. It argues for a comprehensive framework that focuses on active, direct, and transformative participation by community members and investors.

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Bernstein: Racial Classification In Higher Education Admissions Before And After SFFA

David E. Bernstein (George Mason; Google Scholar), Racial Classification in Higher Education Admissions Before and after SFFA, 77 SMU L. Rev. __ (2024):

Hundreds of law review articles have discussed the legality of affirmative action programs. Virtually all of them begin with the implicit assumption that the racial classifications used in these programs are legitimate and uncontroversial (an assumption I challenge in my 2022 book, Classified: The Untold Story of Racial Classifications In America). That assumption has been undermined by Students for Fair Admissions, Inc. v. President and Fellows of Harvard College (“SFFA”).

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Mehrotra Presents American Economic Inequality, Fiscal Exceptionalism, And Resistance To Consumption Taxes Today At NYU

Ajay Mehrotra (Northwestern; Google Scholar) presents The Missing U.S. VAT: Economic Inequality, American Fiscal Exceptionalism, and the Historical U.S. Resistance to National Consumption Taxes at NYU today as part of its Tax Policy and Public Finance Colloquium hosted by Daniel Shaviro:

Since the 1970s, economic inequality has soared dramatically across the globe and particularly in the United States. In that time, one of the obstacles of using fiscal policy to address inequality has been the growing myth of the “overtaxed American”—the misguided notion that U.S. taxpayers pay more in taxes than residents of other advanced, industrialized countries. This myth has persisted, in part, because of the peculiar and distinctive nature of the fractured American fiscal and social welfare state. Even a cursory review of comparative tax data shows that the United States, by most measures, is a low-tax country compared to other affluent nations. One reason for this shortfall is the missing U.S. value-added tax (VAT).

Unlike the United States, other developed countries fund robust social spending through a balanced mix of levies, including by relying on broad-based national consumption taxes such as a VAT, which produces a tremendous amount of government revenue.

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