Mitchell: State Income Tax Rankings

Dan Mitchell, Ranking State Income Taxes:

Motivated in part by an excellent graphic that I shared in 2016, I put together a five-column ranking of state personal income tax systems in 2018.

Given some changes that have since occurred, it’s time for a new version. The first two columns are self explanatory and columns 3 and 5 are based on whether the top tax rate on households is less than 5 percent (“Low Rate”) or more than 8 percent (“Class Warfare”).

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WSJ: AmEx Pitched Business Customers A Tax Break That Doesn’t Add Up

Wall Street Journal, AmEx Pitched Business Customers a Tax Break That Doesn’t Add Up:

Businesses were told they could deduct transaction fees while earning tax-free cash rewards.

The pitch went out to eye doctors, McDonald’s franchisees and payroll companies: “Reduce your taxable income burden to Uncle Sam.”

In phone calls, emails and in-person meetings with thousands of business owners, American Express salespeople laid out the strategy. Use AmEx to pay your employees and suppliers, they said. You’ll have to pay a fee, but you’ll come out ahead. That’s because you can earn rewards on the transaction that can be converted into untaxed cash, while also deducting the transaction fees for tax purposes.

The pitch helped AmEx bring in billions of dollars of transaction volume since at least 2018, according to people familiar with the matter and documents reviewed by The Wall Street Journal. But there was a problem: The strategy relied on a shaky interpretation of how tax law treats rewards points.

In July, a whistleblower filed a report with the Internal Revenue Service alleging that AmEx knowingly persuaded business owners to underreport their income and taxes.

This is “a big company encouraging tax wrongdoing,” said Gregory Lynam, co-founder of Lynam Knott, the law firm that filed the report on the whistleblower’s behalf. It “promotes a tax shelter that doesn’t work.”

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NY Times: Companies Love To Buy Back Their Stock. A Tax Could Deter Them.

New York Times, Companies Love to Buy Back Their Stock. A Tax Could Deter Them.:

Supporters of the Biden buyback tax say it will be good for the economy. Skeptics say it will hurt investment.

Corporate America has been feeding a stock buyback boom for decades, with companies spending trillions of dollars to repurchase their shares without paying any taxes on those transactions.

That could soon change.

In President Biden’s roughly $2 trillion Build Back Better Act, which narrowly passed the House on Friday but faces a tough fight in the Senate, Democrats have proposed a 1 percent tax on stock buybacks. Although it may not seem like much, the tax is a way to raise as much as $124 billion over 10 years, according to government estimates, and could help pay for the social spending and climate package.

Both supporters and critics of the proposed surcharge say it could alter the behavior of companies, but in ways that would have very different consequences for the economy.

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U.S. Tax Court's Tax Trailblazers: Justice Shawna Baker

U.S. Tax Court's Diversity & Inclusion Series, Tax Trailblazers: Mentoring the Next Generation:

Please join the United States Tax Court for the next in its Tax Trailblazers series. November’s webinar will honor Native American Heritage Month and focus on Justice Shawna S. Baker of the Cherokee Nation Supreme Court. Today at 7:00-8:15 PM EST (register here).

Shawna S. Baker is a Cherokee Nation Supreme Court Justice and managing attorney of Family Legacy and Wealth Counsel, PLLC. She is the first member of the LGBT community and only the third woman ever confirmed to the Cherokee Nation Supreme Court.

Before being appointed, Justice Baker served as a litigation associate, an attorney and a managing partner at various law firms, a trustee of a charitable organization, and an assistant professor at the Florida Coastal School of Law.

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Call For Student Tax Papers: 2022 Chris Bergin Award For Excellence In Writing

Christopher E. Bergin Award for Excellence in Writing:

The 2022 submission period for the Christopher E. Bergin Award for Excellence in Writing is now open! This annual award recognizes superior student writing on unsettled questions in tax law or policy. Learn more about the competition guidelines:

• Eligibility: Applicants must be enrolled in an accredited undergraduate or graduate program during the academic year. Each student may submit only one paper.
• Format: Entries should be a minimum of 2,500 words and a maximum of 12,000 words, including footnotes. Citations should be formatted as footnotes in accordance with the current version of The Bluebook: A Uniform System of Citation. Bibliographies and reference lists are prohibited. Articles should be submitted as Microsoft Word documents.

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The Media Got The Billionaires Income Tax Wrong

The American Prospect:  The Media Got the Billionaires Income Tax Wrong, by John R. Brooks (Georgetown; Google Scholar), David Gamage (Indiana; Google Scholar) & Ari Glogower (Ohio State; Google Scholar):

Despite the media framing, a tax on billionaires’ investment income is not novel, unworkable, unconstitutional, or divisive.

Last week, to pay for the priorities in the Build Back Better agenda, Senate Democrats proposed a “billionaires income tax,” which would require billionaires to report and pay tax on their investment gains—the primary source of their income. The reform would have closed one of the most glaring loopholes in our tax law, one that allows the richest Americans to live unimaginably lavish lifestyles without ever paying income tax.

Rather than focusing on these benefits, however, the press coverage centered on a litany of objections. Journalists framed the billionaires income tax as probably unworkable (Reuters), presumptively unconstitutional (Time), and a novel or even radical departure from the income tax as we know it (The New York Times and Fortune, respectively). Sen. Joe Manchin (D-WV) branded it “divisive”—a characterization reported uncritically across many sources.

We are tax law professors, not journalists. But we can say with complete confidence that the billionaires income tax is none of these things. Any honest discussion, in the context of ongoing reconciliation negotiations or further in the future, should begin with this context: The proposed tax is a partial fix within a system defined by complexity and unfairness, which has led to hourly wage earners and salaried professionals paying far higher rates of tax than billionaires. ...

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Mirkay Named Associate Dean For Academic Affairs At Hawaii

New Associate Dean at Richardson Law Looks To Help Guide School Through Strategic Plan:

As the William S. Richardson School of Law wrapped up one of the most challenging years of its existence, it has headed into a new year with a new Associate Dean for Academic Affairs, major plans in motion to reevaluate and strengthen the curriculum, and begin remaking the school in a dynamic growth image to enhance its national stature.

“There is always more you can do, and more impact you can have,” said Professor Nicholas Mirkay, who was named June 1 as the new Associate Dean for Academic Affairs, and is helping guide a strategic planning process started by Dean Camille Nelson at Richardson Law. ...

In welcoming Associate Dean Mirkay into his new role, Nelson thanked him for serving as the Law School’s Director of Faculty Research, and continued, “In this role he has worked tirelessly to enhance our recognition of, and support for, faculty research and writing. He has organized numerous book events, panels, and presentations furthering our intellectual life. Additionally, he has supported the external recognition of faculty scholarly excellence through his work on launching Kaukehakeha (at the highest level), our new e-blast celebrating our faculty scholars whose legal expertise, scholarship, and contributions are recognized both locally and nationally. Before joining the Richardson Law faculty in August 2017, Nick Mirkay was Senior Associate Dean for Administration and Planning and Professor of Law at Creighton University School of Law. He began his career in legal academia at the Delaware Law School of Widener University. Professor Mirkay has primarily taught tax and business law courses in his 18 years in legal academia, including Federal Income Tax, Trusts and Estates, Nonprofit Organizations, Business Associations, and State and Local Taxation. He has received outstanding faculty awards at all three law schools at which he has served! In addition to being an exceptional teacher, Nick is also a prolific scholar and dedicated institutional citizen.”

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ProPubica: How These Ultrawealthy Politicians Avoided Paying Taxes

ProPubica, How These Ultrawealthy Politicians Avoided Paying Taxes:

IRS records reveal how Gov. Jim Justice, Gov. Jared Polis, former Education Secretary Betsy DeVos and other wealthy political figures slashed their taxes using strategies unavailable to most of their constituents. ...

The records show that rich Democrats and Republicans alike have slashed their taxes using strategies unavailable to most of their constituents. Among them are governors, members of Congress and a cabinet secretary. ...

As ProPublica has revealed in a series of articles this year, these tactics, if sometimes aggressive, are completely legal. And they’re not universal among wealthy politicians. ProPublica reviewed tax data for a couple dozen wealthy current and former government officials. Their data shows that many of them paid relatively high tax rates while employing more modest use of the fairly standard deductions of the rich.

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ProPublica: 18 Billionaires Received Taxpayer-Funded Stimulus Checks During The Pandemic

ProPublica, These Billionaires Received Taxpayer-Funded Stimulus Checks During the Pandemic:

ProPublica, using its trove of IRS records, identified at least 18 billionaires who received stimulus payments, which were funded by U.S. taxpayers, in the spring of 2020. Hundreds of other ultrawealthy taxpayers also got checks.

The wealthy taxpayers who received the stimulus checks got them because they came in under the government’s income threshold. In fact, they reported way less taxable income than that — even hundreds of millions less — after they used business write-offs to wipe out their gains.

ProPublica found 270 taxpayers who collectively disclosed $5.7 billion in income, according to their previous tax return, but who were able to deploy deductions at such a massive scale that they qualified for stimulus checks. All listed negative net incomes on tax returns.

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When $200k Is Taxed Like $10 Million: Latest Tax Plan Targets Less Affluent With Trusts

Lynnley Browning (Financial Planning), When $200k Is Taxed Like $10 Million: Latest Tax Plan Targets Less Affluent With Trusts:

Democrats have pivoted to the wallets of the working wealthy in their hunt for cash to fund a winnowing social spending agenda. Their latest proposals could lead to higher taxes on working professionals and business owners who earn good money but aren’t crazy-rich — a stark contrast to their earlier focus on billionaires.

After scrapping efforts aimed at the very richest Americans, lawmakers last week proposed new surcharges that would affect certain trusts and estates with annual income as little as over $200,000. While millionaires to the richest billionaires would also pay the new surcharges, their taxes would kick in at far greater thresholds while they’re alive.

“The people who are going to get hurt are not the really wealthy people doing sophisticated planning but the ordinary taxpayer,” including “mass affluent” individuals worth between $100,000 and $1 million and the would-be rich with small businesses, farms and properties, said Martin Shenkman, an estate planning lawyer based in Fort Lee, New Jersey. ...

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L.A. Times: California Tried To Save The Nation From The Misery Of Tax Filing — Then Intuit Stepped In

Following up on my previous posts (links below):  L.A. Times, California Tried to Save the Nation From the Misery of Tax Filing — Then Intuit Stepped In:

An unexpected letter from the state tax board is the kind of thing known to spike blood pressure. But the note that arrived in tens of thousands of Californians’ mailboxes in 2005 promised to ease anxiety.

The state proposed that these mostly modest-income taxpayers skip the aggravations of hunting for W-2s, the hassling with tax software, the lost evenings and weekends completing returns. Instead, the state could do it for them.

Californians participating in this test run of a “return free” tax system — a goal tax reformers had been chasing since President Reagan proposed it to the nation in 1985 — were so impressed that the thousands of comments that poured into a survey brought tears of joy to Joe Bankman, the Stanford law professor who guided the state’s effort, which was branded “ReadyReturn.”

“They were just so touching,” he said of the comments about ReadyReturn, which was designed as a voluntary offering targeted at taxpayers on the lower end of the income scale. “One said, ‘Finally the government is doing something to make my life better for a change.’ Almost all the comments had the words ‘thank you.’ People were thanking the government for taking something that drove them crazy and improving it.”

Yet not everyone was thankful. Tax software firms faced an existential threat if the federal government were to follow California’s lead. Over the next decade and a half they worked relentlessly — and successfully — to stymie the California project and prevent others like it. They persuaded the Internal Revenue Service for more than a decade to pledge in writing not to adopt California’s innovation or develop any other offerings that threatened their business model. ...

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Dean: Can The Most Powerful Global Tax Organization Shed Its Racist Ways?

The Nation:  Can the Most Powerful Global Tax Organization Shed Its Racist Ways?, by Steven Dean (Brooklyn):

The Organization for Economic Cooperation and Development insists it’s “inclusive,” but it’s still strong-arming countries in the Global South.

We tax lawyers take pride in the complexity of our handiwork. The website of the US Internal Revenue Service quotes no less than Albert Einstein for the proposition that “the hardest thing in the world to understand is the income tax.” We take comfort in the notion that its complexity shields tax law from the damage done by ordinary human foibles. How could rules so byzantine possibly be distorted by racism?

As much as we might like to imagine otherwise, however, tax laws do not operate like the laws of physics. Not even the most brilliant tax expert will discover a universal truth like E = mc. Law professor Dorothy Brown has shown that US “taxpayers bring their racial identities to their tax returns,” so that “being black is more likely to hurt and being white is more likely to help.”

In global tax policy, anti-Black racism continues to be exploited to craft a system that will favor the haves (generating hundreds of billions in revenues for the United States) at the expense of the have-nots (banning a tax that would generate hundreds of millions for countries like Kenya and Nigeria).

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Hemel: A Wealth Tax Is A Good Idea — If We Had A Different Supreme Court

Washington Post op-ed:  A Wealth Tax Is A Good Idea — If We Had a Different Supreme Court, by Daniel Hemel (Chicago; Google Scholar):

Senate Democrats and the Biden administration are reportedly nearing a deal on a new “billionaire tax” to pay for the package of spending programs that is stalled in Congress. The tax — which would apply annually to the increase in the value of stocks and other assets held by taxpayers with a net worth of $1 billion or more — appears to be one of the few revenue-raising measures that Sen. Kyrsten Sinema (D-Ariz.), a key swing vote, is willing to countenance. But there is a potentially fatal flaw in the proposal that should cause progressives to view it as a Trojan horse: The current Supreme Court is quite likely to strike it down as unconstitutional.

To be sure, the constitutional case against the proposed billionaire tax isn’t open and shut. If I were on the Supreme Court, I would say that the tax is constitutional and ought to be upheld. But I’m not on the Supreme Court — and six conservative justices appointed by Republican presidents are. Faced with a genuinely unresolved legal question for which there are plausible arguments on both sides, those justices would not have a hard time saying that the billionaire tax flunks the constitutional test.

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U.S. Tax Court's Tax Trailblazers: George Yin

U.S. Tax Court's Diversity & Inclusion Series, Tax Trailblazers: Mentoring the Next Generation:

Please join the United States Tax Court for the next in its Tax Trailblazers Series. Judge Albert G. Lauber will interview George K. Yin about his path to—and success in—the field of tax law. Today at 7:00-8:15 PM EST (register here).

George K. Yin is the Edwin S. Cohen Distinguished Professor of Law and Taxation Emeritus at the University of Virginia School of Law. He attended the Bronx High School of Science in New York City, graduated from the University of Michigan’s honors program with a degree in mathematics and economics, earned his JD with honors from the National Law Center at George Washington University, and holds a Master’s Degree in Education from the University of Florida, Gainesville.

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The Hidden Ways The Ultrarich Pass Wealth To Their Heirs Tax-Free

Bloomberg Businessweek, The Hidden Ways the Ultrarich Pass Wealth to Their Heirs Tax-Free:

An inside look at how Nike founder Phil Knight is giving a fortune to his family while avoiding billions in U.S. taxes.

Sitting in the bleachers by the University of Oregon’s running track, Nike Inc. founder Philip Knight offered the sort of lofty promise many other super rich Americans have made over the past decade. The bulk of his money, he told CBS News that day in 2016, would be given away—eventually. “By the time the lives of my children and their kids run out, I will have given most of it to charity,” he said. What Knight didn’t mention was that, for years, he’d been using a range of legal techniques to ensure his heirs keep control of most of his assets and profit from them in the process, quietly transferring vast piles of money in a textbook example of how the rich avoid taxes.

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Tax Prof Twitter Census (2021-22 Edition)

According to Bridget Crawford's latest census, there are 1,477 Law Profs on Twitter, including 90 Tax Profs (several with tax in their Twitter handles):

• @AdamThimmesch (Adam Thimmesch, Nebraska)
• @AjayKMehrotra (Ajay Mehrotra, Northwestern)
• @ajurowkleiman (Ariel Jurow Kleiman, San Diego)
• @andygrewal (Andy Grewal, Iowa)
• @AriGlogower (Ari Glogower, Ohio State)
• @ArthurEshiwani (Arthur Eshiwanti, Nairobi)
• @AshritaPrasad (Ashrita Prasad, OP Jindal Global Univ.)
• @at_hayashi (Andrew Hayashi, Virginia)
• @AusTaxProf (Miranda Stewart, Melbourne)
• @bearerfriend (Jeremy Bearer-Friend, George Washington)
• @benmosesleff (Benjamin Leff, American)
• @book_leslie (Leslie Book, Villanova)
• @brooklyntaxprof (Steven Dean, Brooklyn)
• @ChanceyGardener ‏(Allen Madison, South Dakota)
• @ChristineYR_Kim (Christine Kim, Utah)
• @clintwallace (Clint Wallace, South Carolina)
• @CSSpeidel (Christine Speidel, Villanova)
• @cryptolawprof (Del Wright Jr., Missouri-Kansas City)
• @DanielJHemel (Daniel Hemel, Chicago)
• @DanielShaviro (Daniel Shaviro, NYU)
• @david_hasen (David Hasen, Florida)
• @davidckamin (David Kamin, NYU)
• @davidsgamage (David Gamage, Indiana-Maurer)
• @deathntaxesprof (Goldburn Maynard, Indiana University Business School)
• @delaFeriaR (Rita de la Feria, Leeds)
• @DorothyABrown (Dorothy Brown, Emory)

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How A $2 Million Condo In Brooklyn Ends Up With A $157 Real Estate Tax Bill

Bloomberg, How a $2 Million Condo in Brooklyn Ends Up With a $157 Tax Bill:

Opaque methods, hypothetical numbers and ‘bonkers’ adjustments shift the property-tax burden toward middle- and working-class New Yorkers.

For years, when confronted with complaints of uneven property taxes, the New York City Department of Finance has blamed a state law that requires it to ignore the sale prices of condos and co-ops when determining their taxable value. Instead, the law requires city assessors to engage in a kind of thought experiment: Pretend co-ops and condos produce income for their owners—even though they don’t—and set their taxable values based on a hypothetical amount of income they’d generate if they did.

That law, designed to protect condos and co-ops from higher taxes, lays the groundwork for warped results. But now, for the first time, a Bloomberg News investigation reveals that city officials have made a bad situation worse. They’ve invented data points that bear no resemblance to market reality and used them in opaque calculations that tend to favor wealthy property owners. These flawed valuations shift hundreds of millions of dollars in tax burden from higher- to lower-priced properties and to rental apartment buildings every year.

City ordinances have created special exemptions that reduce taxable values for qualifying properties and abatements that shrink eligible tax bills—special breaks that have significant effects. But flawed valuations present a problem at a deeper level, one that’s far less apparent to most taxpayers.

A Bloomberg analysis of millions of city records related to condo sales and taxes shows that, in effect, two steps in New York’s assessment process combine to help perpetuate unfairness. First, city officials reduce the taxable values of condos across the board by adjusting an important data point—the so-called capitalization rate—in their calculations. Capitalization rates help investors gauge the value of income-producing properties; the higher the rate, the lower the property value. The rate that assessors apply is more than double the actual rates reflected in New York real estate markets.

• Five Key Takeaways From Bloomberg’s Study of NYC Property Taxes
• Methodology

NY Times Op-Ed: Be Careful With IRS Reform

New York Times op-ed:  I’m the President of the National Taxpayers Union. Be Careful With I.R.S. Reform., by Pete Sepp (President, National Taxpayers Union):

Democratic lawmakers plan to boost the Internal Revenue Service’s enforcement authority to help pay for the spending package working through Congress. But while the I.R.S. needs more funding to fulfill its mission, the current version of the reform legislation would run roughshod over decades of taxpayer protections that were enshrined by huge bipartisan majorities. ...

Beyond the rollback of taxpayer rights, the retroactivity of these provisions could face legal trouble. Retroactive taxation is still widely practiced, and used to pressure taxpayers to settle with the I.R.S. While the Supreme Court has never definitively ruled on the practice, when it last considered the issue in 1994’s United States v. Carlton, it came close to deciding that anything beyond one year of retroactivity violates due process. Given a retroactive tax case again, the court may rein in the practice for good.

Ironically, the I.R.S.’s budget increase is unlikely to raise the revenue Congress anticipates.

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WSJ Op-Ed: The Democrats’ Tax-The-Rich Ruse

Wall Street Journal op-ed:  The Democrats’ Tax-the-Rich Ruse, by Phil Gramm & Mike Solon:

President Biden’s effort to pass the largest tax increase in U.S. history is based on the verifiably false claim that Americans with high incomes don’t pay their “fair share.” In no other country do the rich bear a greater share of the income-tax burden than they do in the U.S.

Organization for Economic Cooperation and Development data show that the top 10% of American households earn about 33.5% of all earned income but pay 45.1% of all income taxes, including Social Security and Medicare payroll taxes. That progressivity ratio of 1.35 is far higher than in any other country. The ratio in France is 1.10. In Germany it’s 1.07, and in Sweden an even 1. In the last OECD study, in 2015, the top 10% of earners in the U.S. paid 45% of all income taxes. In France, the top 10% only paid 28%. In Germany they paid 31% and in Sweden 27%. Conversely, the bottom 90% of earners in the U.S. paid 55%. The bottom 90% of earners in France paid 72%. In Germany it was 69% and in Sweden 73%.

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Tax Profs Oppose Proposed Charitable Conservation Easement Curing Provision

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

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

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

Congressional Budget Office, Monthly Budget Review: September 2021:

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

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

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

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

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Break Into Tax: Friday The 15th

Tax day is coming soon. ... For tax professionals, every day is a KILLER! Friday the 15th. ... A 2-week nightmare of taxes. You don't even have until Monday!

 Break Into Tax thanks Nickolas Cole for help with the thumbnail image.

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136 Countries Agree To 15% Global Minimum Corporate Tax Rate

OECD, International Community Strikes a Ground-Breaking Tax Deal For the Digital Age:

Major reform of the international tax system finalised today at the OECD will ensure that Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023.

The landmark deal, agreed by 136 countries and jurisdictions representing more than 90% of global GDP, will also reallocate more than USD 125 billion of profits from around 100 of the world’s largest and most profitable MNEs to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits.

Following years of intensive negotiations to bring the international tax system into the 21st century, 136 jurisdictions (out of the 140 members of the OECD/G20 Inclusive Framework on BEPS) joined the Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy. It updates and finalises a July political agreement by members of the Inclusive Framework to fundamentally reform international tax rules.

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Hemel: South Dakota’s Tax Avoidance Schemes Represent Federalism At Its Worst

Washington Post op-ed:  South Dakota’s Tax Avoidance Schemes Represent Federalism At Its Worst, by Daniel Hemel (Chicago; Google Scholar): 

States should be free to experiment with policy — but not to create tax dodges.

The Pandora Papers — the trove of more than 11.9 million confidential documents shared with The Washington Post and partner news organizations — shine a light on South Dakota’s role as an offshore financial center.

The Pandora Papers — the trove of more than 11.9 million confidential documents shared with The Washington Post and partner news organizations — shine a light on South Dakota’s role as an offshore financial center.

For the most part, the South Dakota revelations in the Pandora Papers relate to the Mount Rushmore State’s status as a magnet for foreign wealth, including that derived from international drug smuggling and exploitative labor practices. But it’s not just foreigners who are moving money to the “little tax haven on the prairie”: High-net-worth Americans also are shifting billions to South Dakota and a handful of other domestic havens, shortchanging federal and home state tax collectors in the process.

The rise of domestic tax havens marks a troubling new chapter in the history of American federalism. Justice Louis Brandeis hailed states as “laboratories of democracy,” but increasingly U.S. states are becoming laboratories of sophisticated tax avoidance. So far, Congress and the states whose tax bases are being cannibalized by the domestic havens have done little to fight back. Hopefully, the Pandora Papers will catalyze a reaction that’s long past due.

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Democrats’ Tax Plan Upends Estate Planning Using Trusts With Life Insurance

Lynnley Browning (Financial Planning), Democrats’ Tax Plan Upends Estate Planning Using Trusts With Life Insurance:

The tax plan taking shape in Congress would strangle a strategy widely used by the wealthy to shield their estates from taxes and pass on major wealth to heirs. Specifically, it would erase the long-standing benefit of keeping life insurance in certain trusts, by making its value subject to the 40% estate tax when the policy owner dies. That’s a huge change: Currently, the trusts and their assets aren’t subject to the levy.

With that prospect, why pour money into a policy now? Because, the thinking goes, pre-paying a lifetime’s worth of annual premiums by Jan. 1, before the new curb would go into effect if approved, could preserve the trust’s lucrative tax benefits. ...

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Former W&L Dean Brant Hellwig To Lead NYU Graduate Tax Program

NYU Law News, Brant Hellwig LLM ’00 to Lead Graduate Tax Program:

Brant Hellwig LLM ’00 will join NYU Law on January 1, 2022 as professor of tax law and as the new faculty director of the Graduate Tax Program, Dean Trevor Morrison announced on October 1.

Hellwig arrives at NYU Law after serving as dean and professor at Washington & Lee School of Law, and two decades after he began his academic career at NYU Law as an acting assistant professor for tax law. “Brant returns to NYU Law with extensive knowledge of and passion for the Graduate Tax Program,” Morrison said in an email announcement. “Please join me in congratulating him and welcoming him back to the NYU Law community.”

An expert in the field of federal taxation, Hellwig has produced prolific scholarship on a wide range of topics, from the income tax consequences of deferred compensation arrangements to the treatment of family-owned holding companies under the federal estate tax. He recently co-authored two casebooks, one on partnership taxation in 2019 and one on business enterprise taxation in 2020, with Stephen Schwarz and Daniel J. Lathrope. In 2019, he also co-authored a casebook on estate and gift taxation with W&L Law colleague Robert Danforth. In 2015, commissioned by the United States Tax Court, he updated and expanded a seminal treatise on the court’s history and evolving jurisdiction.

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Trump Faces A Tax Reckoning In New York

The New Yorker, Trump Still Faces a Reckoning in New York:

Court documents and interviews indicate that the Manhattan District Attorney is accumulating evidence of pervasive tax fraud.

Last Monday, eighty days after their first courtroom appearance in a case known as The People of the State of New York v. The Trump Corporation, et al., the defendants’ lawyers walked down the hallway on the eleventh floor of the Manhattan Criminal Courts Building, ready to face the judge. The long, timeworn corridor was not crowded; far fewer reporters had gathered than during the initial court hearing, in July, when prosecutors unveiled fifteen felony charges, including tax fraud and grand larceny, against Donald Trump’s company and its chief financial officer, Allen Weisselberg. The packed hallway was so hot that day that someone had jammed a scrunched-up plastic water bottle under the door of the women’s bathroom, propping it open so a bit of cool air after a midday downpour could slip through a window within, past the cruddy stalls and beige-tiled floors and out into the corridor.

The diminished audience last week reflected a perception, aided by Trump’s lawyers, that the case is not all that serious, a sideshow. The alleged crimes committed by the Trump Corporation and Weisselberg relate to the conferring of privileges like luxury apartments, private schools, pricey cars, even parking spots. The word “perks” has slipped into news coverage of the case. But prosecutors have issued new subpoenas and are continuing to use the extensive powers of a New York grand jury to possibly add new charges and new defendants to the case. It’s not clear who those defendants are or what the charges may be. During last Monday’s court appearance, one of Weisselberg’s attorneys, Bryan Skarlatos, said, “We have strong reason to believe there could be other indictments coming.” He expressed concern that Weisselberg could become “collateral damage as part of a bigger fight between the Trump Organization and the District Attorney’s office.”

Even if no additional charges are filed, the former President’s company faces a potential reckoning. The charging documents and interviews with former prosecutors and white-collar defense lawyers indicate that the District Attorney is accumulating evidence of pervasive tax fraud. The case goes to the heart of what made—and still makes—Trump Trump. ...

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The Pandora Papers: Tax Havens Of The Rich And Famous

Washington Post, The Pandora Papers | A Global Investigation | Billions Hidden Beyond Reach:

A massive trove of private financial records shared with The Washington Post exposes vast reaches of the secretive offshore system used to hide billions of dollars from tax authorities, creditors, criminal investigators and — in 14 cases involving current country leaders — citizens around the world.

• Key Findings from the Pandora Papers Investigation
• FAQ: The World of Secret Money
• Why The Post Published the Pandora Papers Investigation
• Vladimir Putin: Secret Money, Swanky Real Estate, and a Monte Carlo Mystery
• While His Country Struggles, Jordan's King Abdullah Secretly Splurges

International Consortium of Investigative Journalists, Pandora Papers

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The Christian Case For Biden's Plan To Raise Taxes On America's Rich

NBC News op-ed:  The Christian Case For Biden's Plan to Raise Taxes on America's Rich, Guthrie Graves-Fitzsimmons (Fellow, Faith and Progressive Policy Initiative, Center for American Progress):

Jesus taught that “it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.” His words came to mind as I watched Jeff Bezos board his private spaceship in July. It seems easier today for a billionaire to launch himself into space than for Congress to increase taxes on rich people.

Thankfully, Congress is now considering how to raise taxes on wealthy people and corporations to fund historic investments in President Joe Biden’s Build Back Better agenda. This isn’t just good policy or good politics, it’s also good Christian ethics.

Many Christians in the United States — and Americans writ large — favor raising taxes on rich people and corporations, according to recent polls. Sixty percent of self-identifying Christians believe upper-income people pay too little in taxes, according to an April Morning Consult/Politico poll, while 62 percent of Christians believe corporations pay too little in taxes. And 77 percent of Christians in the same poll agreed that the wealthiest Americans should pay higher taxes, while 71 percent said the same about corporations. ...

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ProPublica: More Than Half Of America’s 100 Richest People Exploit GRATs To Avoid Estate Taxes

ProPublica, More Than Half of America’s 100 Richest People Exploit Special Trusts to Avoid Estate Taxes:

It’s well known, at least among tax lawyers and accountants for the ultrawealthy: The estate tax can be easily avoided by exploiting a loophole unwittingly created by Congress three decades ago. By using special trusts, a rarefied group of Americans has taken advantage of this loophole, reducing government revenues and fueling inequality.

There is no way for the public to know who uses these special trusts aside from when they’ve been disclosed in lawsuits or securities filings. There’s also been no way to quantify just how much in estate tax has been lost to them, though, in 2013, the lawyer who pioneered the use of the most common one — known as the grantor retained annuity trust, or GRAT — estimated they may have cost the U.S. Treasury about $100 billion over the prior 13 years.

As Congress considers cracking down on GRATs and other trusts to help fund President Joe Biden’s domestic agenda, a new analysis by ProPublica based on a trove of tax information about thousands of the wealthiest Americans sheds light on just how widespread the use of special trusts to dodge the estate tax has become.

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Schedule VR: The IRS Can Register Voters Just As Well As The DMV

New York Times op-ed:  The I.R.S. Can Register Voters Just as Well as the D.M.V. Maybe Better., by Jeremy Bearer-Friend (George Washington) & Vanessa Williamson (Brookings Institution):

Income tax forms are notoriously complicated, but there is one simple question that is missing: “Would you like to register to vote in your home state?” With over 150 million American households filing federal income tax returns each year, our annual ritual of tax filing is a missed opportunity for voter registration.

While Americans are filling out their 1040s and Schedule Cs, they should also be asked if they would like to complete a voter registration form. The form, let’s call it a Schedule VR, would be separate from tax information, and would be available to all citizens, regardless of the amount of taxes paid or refunded. A Schedule VR would be the simplest way to create a national and nearly universal registration system.

There is good evidence that tax-time voter registration would work.

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Tax Profs Urge Court To Reject Chamber Of Commerce And Big Tech’s Legal Challenge To Maryland’s Digital Ad Tax

Democracy Forward, Tax Law Professors Urge Court to Reject Chamber of Commerce and Big Tech’s Legal Challenge to Maryland’s Digital Ad Tax:

Late Monday, tax law professors Darien Shanske and Young Ran (Christine) Kim filed a brief in a lawsuit brought by the Chamber of Commerce and Big Tech challenging Maryland’s first-in-the-nation digital advertising tax. The professors’ brief urges the court to reject the lawsuit brought by industry groups, which seeks to misuse federal law to create a broad tax shelter for extremely profitable digital advertising platforms, including Google, Facebook, and Amazon. The brief was filed on the professors’ behalf by Democracy Forward.

“The plaintiffs’ claims in this case are simply incorrect as a matter of law,” said Darien Shanske, Professor of Law at the University of California, Davis, School of Law. “Furthermore, two important parts of federal law are supposed to keep this kind of creative obstruction from disrupting state revenue collection. First, courts are not supposed to strain to find ways to displace state revenue authority. Second, federal courts in particular are not supposed to be in the business of enjoining state revenue collection.”

“Digital advertising platforms operate in a two-sided market, which makes them fundamentally different from non-digital advertising,” said Young Ran (Christine) Kim, Associate Professor of Law at the University of Utah S.J. Quinney College of Law. “Moreover, the barter transaction side between the platform and Maryland users was not previously taxed. I support Maryland’s Digital Ad Tax because it aims to tax revenues generated by digital advertising platforms that were previously untaxed and that result from barter exchanges with Maryland users.”

Maryland’s digital advertising law imposes a tax on a percentage of revenues that advertising platforms with over $100 million in annual global revenue earn from digital ads that are served in Maryland.

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U.S. Tax Court's Tax Trailblazers: Judge Juan F. Vasquez

U.S. Tax Court's Diversity & Inclusion Series, Tax Trailblazers: Mentoring the Next Generation:

Please join the United States Tax Court in honoring National Hispanic American Heritage Month. September's webinar will focus on Tax Court Judge Juan F. Vasquez and his path to and success in-the field of tax law. Today at 7:00-8:15 PM EST (register here).

Judge Juan F. Vasquez was born in San Antonio, Texas and graduated from Fox Tech High School and San Antonio Junior College with an Associate's Degree in Data Processing. He received a B.B.A. in Accounting from the University of Texas, Austin, and a J.D. from the University of Houston Law Center. He received his LL.M. in Taxation from New York University School of Law. In addition to being a member of the legal bar, Judge Vasquez is a Certified Public Accountant.

Originally appointed for a 15-year term by President Clinton, Judge Vasquez was reappointed by President Obama for a second 15-year term. Judge Vasquez assumed senior status in 2018 and continues to perform judicial duties on recall.

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Peter Thiel Gamed Silicon Valley, Donald Trump, And Democracy To Make Billions, Tax-Free

Bloomberg Businessweek, Peter Thiel Gamed Silicon Valley, Donald Trump, and Democracy to Make Billions, Tax-Free:

In an exclusive excerpt from The Contrarian, a new biography, the disruption-preaching power broker is revealed as just another rich guy desperate to keep his fortune from the IRS.

Trump’s presidency would not end badly for Thiel, who didn’t comment for this article, adapted from my forthcoming book, The Contrarian. Thiel’s companies would win government contracts, and his net worth would soar—and it would, crucially, remain in the legal tax shelter that he’s spent half his career trying to protect. As a venture capitalist, Thiel had made it his business to find up-and-comers, invest in their success, and then sell his stock when it was financially advantageous to do so. Now he was doing the same with a U.S. president.

Thiel is sometimes portrayed as the tech industry’s token conservative, a view that wildly understates his power. More than any other living Silicon Valley investor or entrepreneur—more so even than Bezos, or Page, or Facebook co-founder and Thiel protégé Mark Zuckerberg—he has been responsible for creating the ideology that has come to define Silicon Valley today: that technological progress should be pursued relentlessly, with little if any regard for potential costs or dangers to society. Thiel isn’t the richest tech mogul, but he has been, in many ways, the most influential. ...

By the fall of 2020, published estimates were putting Thiel’s personal net worth at around $5 billion, roughly double what it had been before Trump was elected. This was a reflection of his stake in Palantir, which had gone public in August at a valuation of around $20 billion. Thiel then owned about 20% of the company and also held stakes in a number of others whose fortunes had soared. Besides Anduril, there was SpaceX, which was now worth as much as $100 billion thanks in part to a booming business with the federal government, and Airbnb, which had recently gone public. By any financial measure, it had been a good four years.

But those who know Thiel say that even these estimates were probably way too conservative and that his true net worth was closer to $10 billion, possibly much more. That was partly because he had quietly accumulated stakes in a handful of private companies with exceedingly high valuations, including the online payments startup Stripe; a person close to Thiel figures his share is worth at least $1.5 billion. But it was also because Thiel was shielding a large percentage of his investment assets from taxes of any kind.

The strategy was legal, even if it was, from the standpoint of any normal sense of fairness, outrageous.

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Amid Calls to #TaxTheChurches: What And How Much Do U.S. Religious Organizations Not Pay?

Chronicle of Higher Education, Amid Calls to #TaxTheChurches — What and How Much Do U.S. Religious Organizations Not Pay?:

The hashtag #TaxTheChurches began trending on Twitter in mid-July.

The spark was allegations about the wealth of celebrity pastor Joel Osteen. But it wasn’t the first time that “tax the churches” has circulated. In fact it is slogan that long predates social media — Frank Zappa was singing it back in 1981, and Mark Twain expressed similar sentiments many decades before that.

As a sociologist of religion, I’ve long been interested in why religious institutions are exempt from certain taxes and what that means in potential lost revenue for the United States. In 2012, I examined this issue and estimated that in total, churches in the United States get out of paying around $71 billion in taxes annually. ...

[L]ocal and state governments forgo roughly $6.9 billion in tax revenue annually by exempting religions from paying property taxes.

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Biden Could Owe As Much As $500K In Back Taxes, Congressional Research Service Indicates

New York Post, Biden Could Owe As Much As $500K in Back Taxes, Government Report Indicates:

Republicans say a new nonpartisan report indicates President Biden improperly avoided paying Medicare taxes before he took office — raising eyebrows and the possibility that he owes the IRS as much as $500,000 in back taxes. ...

A House Ways and Means Committee draft of the bill would end the accounting trick apparently exploited by Biden and boost IRS funding for audits — but the new report, drafted by the Congressional Research Service and provided to The Post, suggests Biden owes taxes under current rules, according to the congressman who requested it.

“Joe Biden wants to raise taxes by $2.1 trillion while claiming the rich need to pay their ‘fair share.’ But in 2017, multimillionaire Joe Biden skirted his payroll taxes — the very taxes that fund Medicare and ObamaCare,” said Rep. Jim Banks (R-Ind.), chairman of the conservative Republican Study Committee. ...

Banks said the report shows Biden improperly used “S corporations” to avoid paying Medicare tax on speaking fees and book sales in 2017 and 2018.

Biden and first lady Jill Biden routed more than $13 million through S corporations and counted less than $800,000 of it as salary eligible for the Medicare tax — exempting the rest from what would have been a 3.8 percent rate, the Wall Street Journal reported.

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Lederman & Bearer-Friend: Break Into Legal Academia

Learn about the legal academic hiring market! This video discusses fellowships & VAPs; describes what a law professor's job entails; explains how the entry-level hiring market works; and talks a bit towards the end about the lateral market, including visitorships. The video focuses on tenure-track doctrinal positions.

The purpose of this video is to break down information barriers and help level the playing field for those interested in legal academia. In part, Professors Leandra Lederman (Indiana; Google Scholar) & Jeremy Bearer-Friend (George Washington; Google Scholar) discuss their experiences. Professor Lederman is a senior professor who has taught at several schools and has served on Faculty Appointments Committees. Professor Bearer-Friend is a junior professor who completed a VAP (Visiting Assistant Professorship) before entering a tenure-track position.

There are several online and other resources discussed in this video. We also recommend seeking out mentors for advice, particularly with respect to your own situation and specific issues or potential barriers you are concerned about. The resources shown or discussed in the video include the following:

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Senate Votes 64-34 To Confirm Lily Batchelder (NYU) As Assistant Treasury Secretary For Tax Policy

Following up on my previous post:  The Hill, Senate Confirms Biden Nominee for Top Treasury Tax Position:

The Senate voted on Wednesday to confirm President Biden’s nominee Lily Batchelder to serve as assistant secretary for tax policy in the Treasury Department.

The upper chamber voted 64-34 to confirm Batchelder, a law professor at New York University and a former Obama administration official, on Wednesday afternoon.

In the key role, Batchelder will serve as senior advisor to Treasury Secretary Janet Yellen for developing and implementing tax policy. She will oversee the Office of the Tax Legislative Counsel, the Office of the International Tax Counsel, the Office of the Benefits Tax Counsel, and the Office of Tax Analysis.

• Law360
• Reuters

Treasury To Eye ‘Clawback’ Of Estate And Gift Taxes From Trusts Used By The Wealthy

Lynnley Browning (Financial Planning), Treasury to Eye ‘Clawback’ of Estate and Gift Taxes From Trusts Used by the Wealthy:

Financial advisors know by now that Democrats’ proposed tax increases would prevent affluent investors from using trusts to pass on major wealth to their heirs.

What most advisors and even estate planners don’t know: There’s a separate existential threat to investors who use trusts to move assets out of their estate free of estate and gift taxes.

The threat doesn’t come from Congressional tax writers, who are fighting over how to raise taxes to pay for the Biden administration’s $3.5 trillion spending plan. Instead, it comes via a nearly unnoticed sentence in an obscure Treasury Department document released by the agency earlier this month.

Treasury is looking at whether the IRS could “claw back” taxes on gifts that investors have made under the higher estate and gift tax exemption levels in place since 2018, according to a little-noticed remark in the agency's priority guidance plan released on Sept. 9. The recapture would come once those higher thresholds expire come 2026.

The agency’s flagging of the issue “has the potential to claw back into a taxable estate transfers into trusts that were made when exemptions were higher,” said Michael Repak, a vice president and senior estate planner at wealth management firm Janney Montgomery Scott in Philadelphia.

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Stiglitz, Tucker & Zucman: The Global Minimum Tax Deal Is About More Than Fairness

Foreign Affairs: Ending the Race to the Bottom: The Global Minimum Tax Deal Is About More Than Fairness, by Joseph E. Stiglitz (Columbia; Google Scholar), Todd N. Tucker (Roosevelt Institute; Google Scholar) & Gabriel Zucman (UC-Berkeley; Google Scholar):

The year is 2100. Humanity has averted the worst impacts of climate change, as economies around the world decarbonized by 2050 and even went “carbon negative” in the decades that followed. Since the end of the U.S. occupations of Iraq and Afghanistan, there has not been a major war, and after initial escalation of tensions between the United States and China earlier in the century, there was no new Cold War. Instead of the competition for resources that characterized earlier periods of humanity’s history, an ethos of cooperation emerged.

Historians debate when the turning point occurred, but the leading school of thought pinpoints 2021 as the moment of change. Prior to that point, it was seen as acceptable and even smart economic policy to charge little to no tax on society’s wealthiest individuals and corporations. Countries even competed with one another so that if one nation raised taxes to tackle inequality’s corrosive effects on economic growth and democracy, its neighbor would respond by cutting taxes. This engendered a shift of profits on paper from the first to the second country, even if no actual productive activity shifted its location. In this world, wealth was unmoored from the communities that helped produce it, spawning a global elite that plundered with impunity. This helped spark populist and authoritarian movements around the world.

There was no way to accomplish the big transformations humanity needed without redirecting resources away from ultrawealthy individuals and massively profitable firms and toward investments in the common good. Disrupting this extractive pattern required governments to make it harder for corporations to move money and economic activity across borders for the purpose of minimizing their tax bills. The key was setting a global minimum tax rate, which countries finally achieved in 2030, inaugurating a new form of globalization in which international cooperation prevailed, wages rose with productivity, and inequality receded.

This speculative future is not implausible. It is, in fact, a potential outcome of the historic tax agreement in July among more than 130 countries. As we explained in Foreign Affairs in 2020, squashing the global tax-avoidance industry is not only vital to establishing a sense of fairness in the international economic system; it is also an important tool for coping with climate change and addressing the myriad other issues facing the world today. Warming temperatures are disrupting food supply systems, infrastructure, and global health. Governments need revenue to deal with these changes. Whether the new global tax deal helps provide countries with the resources they need will depend in part on whether they can summon the political will to finalize it and rigorously enforce it. ...

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ProPublica: House Bill Would Blow Up The Massive IRAs Of The Superwealthy

ProPublica, House Bill Would Blow Up the Massive IRAs of the Superwealthy:

Legislation currently making its way through Congress would take a sledgehammer to the massive individual retirement accounts built up tax-free by a select group of the ultrawealthy.

The proposal, which is part of the infrastructure and tax package advancing in the House, targets the jaw-dropping IRAs accumulated by multimillionaires and billionaires such as tech investor Peter Thiel, which were first reported by ProPublica earlier this year. Those accounts — Thiel’s alone was worth $5 billion in 2019 — have allowed some super-wealthy Americans to turn their Roth IRAs, tools meant to incentivize middle-class retirement saving, into supersized tax shelters.

The proposed reform, put forward by House Ways and Means Chairman Richard Neal, D-Mass., would effectively cap the total amount someone could hold in a Roth at $20 million and compel the holders of the giant accounts to withdraw anything over that limit.

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How A Key Biden Tax Idea Got Crushed

Alan Cole (Full Stack Economics), How a Key Biden Tax Idea Got Crushed:

President Joe Biden came into office planning to tax intergenerational wealth more heavily. He had several policy ideas to do this, and the most intellectually defensible of these was to change a capital gains tax provision called “step-up basis.”

Under current law, when you sell an asset, you pay capital gains tax on the amount the asset appreciated. The appreciation is calculated by subtracting the acquisition price—known as the basis—from the sale price. However, there is an exception when you inherit an asset: the basis is the value of the asset at the time you inherited it, not the value at the time it was originally acquired. The capital gains between acquisition and inheritance are lost to the income tax system, as the Treasury Department explained in a recent report supporting Biden’s plan.

Biden had hoped to address this issue in upcoming legislation. But that plan is now in shambles after a public revolt and a decisive push from lobbyists like former senator Heidi Heitkamp. Step-up repeal has been entirely removed from the latest plans released by House Ways and Means Chair Richard Neal.

“Frankly this is a humiliating climbdown from the administration’s posture,” Capital Alpha Partners’ James Lucier told the Financial Times.

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NY Times: Tax Lawyers At Top Accounting Firms Cycle In And Out Of Top Treasury Posts And Reap Huge Reward For Their Clients And Themselves

New York Times, How Accounting Giants Craft Favorable Tax Rules From Inside Government:

For six years, Audrey Ellis and Adam Feuerstein worked together at PwC, the giant accounting firm, helping the world’s biggest companies avoid taxes.

In mid-2018, one of Mr. Feuerstein’s clients, an influential association of real estate companies, was trying to persuade government officials that its members should qualify for a new federal tax break. Mr. Feuerstein knew just the person to turn to for help. Ms. Ellis had recently joined the Treasury Department, and she was drafting the rules for this very deduction.

That summer, Ms. Ellis met with Mr. Feuerstein and his client’s lobbyists. The next week, the Treasury granted their wish—a decision potentially worth billions of dollars to PwC’s clients.

About a year later, Ms. Ellis returned to PwC, where she was immediately promoted to partner. She and Mr. Feuerstein now work together advising large companies on how to exploit wrinkles in the tax regulations that Ms. Ellis helped write.

Ms. Ellis’s case — detailed in public records and by people with direct knowledge of her work at the Treasury and at PwC — is no outlier.

The largest U.S. accounting firms have perfected a remarkably effective behind-the-scenes system to promote their interests in Washington. Their tax lawyers take senior jobs at the Treasury Department, where they write policies that are frequently favorable to their former corporate clients, often with the expectation that they will soon return to their old employers. The firms welcome them back with loftier titles and higher pay, according to public records reviewed by The New York Times and interviews with current and former government and industry officials.

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NY Times: Why Taxing Stock Buybacks Is The Wrong Fix For Excessive Executive Pay

Following up on my previous posts (links below):  New York Times DealBook:  Why Taxing Stock Buybacks Is the Wrong Fix for Executive Pay:

Corporate share buybacks have been a boogeyman on the left ever since Senator Bernie Sanders attacked them during his presidential run in 2016.

Now the cause has been taken up by Senate Democrats, who want to tax corporations on their stock repurchases. The stated reason is that companies should use their cash to increase wages rather than goose their stock prices and reward their chief executives.

But the truth is that taxing or restricting share buybacks won’t end corporate greed, or excessive compensation.

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WSJ: How A Tech Mogul Pushed Through The Opportunity Zones Tax Break

Wall Street Journal Essay:  How a Tech Mogul Pushed Through a Tax Break, by David Wessel (Brookings Institution; Author, Only the Rich Can Play: How Washington Works in the New Gilded Age (Oct. 2021)):

Sean Parker lobbied to create Opportunity Zones to encourage development in low-income areas, but so far the main beneficiaries are investors wanting lower taxes.

The U.S. tax code is larded with provisions that the wealthy use to reduce their taxes. Some get a lot of attention, while some are inserted into tax bills very quietly—like Opportunity Zones, or OZs.

Six pages tucked into the sprawling 2017 Tax Cuts and Jobs Act led to the creation of 8,764 of these tax havens across the U.S., ostensibly to lure private capital to poor neighborhoods. Anyone can invest capital gains from a previous investment in a building or business in a census tract designated as an OZ by a state’s governor, defer and reduce taxes on that initial gain, and then pay zero capital-gains tax on any profits from that OZ investment, provided that they stick with it for 10 years. Other than holding on to an appreciated asset until you bequeath it to your children, there aren’t many other ways to avoid capital-gains taxes altogether. This one has a huge advantage: “You don’t have to die,” says Brad Cohen, a Los Angeles tax lawyer.

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Christians & Lederman Launch Season 2 Of Break Into Tax

Allison Christians (McGill) and Leandra Lederman (Indiana) introduce Season 2 of their YouTube series, Break Into Tax (BiT):

Professors Leandra Lederman & Allison Christians summarize Season 1 & bring Break Into Tax into Season 2! Prof. Lederman will run Season 2, and it will feature some guest co-hosts. Prof. Christians will make some cameo appearances here and there!

Break Into Tax series is intended for anyone learning about tax, anywhere in the world. For more about our backgrounds, see the Season 1 Intro video. 

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Brown: Congress Is Passing Up A Chance To Close A Tax Loophole — And The Racial Wealth Gap

Washington Post op-ed:  Congress Is Passing Up a Chance to Close a Tax Loophole — and the Racial Wealth Gap, by Dorothy Brown (Emory; Visiting at Georgetown):

The ‘step-up in basis’ rule benefits a small, mostly White, group of Americans.

The United States has a huge racial wealth gap: The median wealth of White families is almost eight times that of Black families and five times that of Hispanic families. One of the hidden drivers of this gap is tax policy, which has accelerated wealth-building by White families, while excluding most Black families. Congress recently had an opportunity to reform at least one lever of that inequality — only to reject it.

Earlier this year, as part of the American Families Plan, the Biden administration proposed closing a nearly century-old loophole called “step-up in basis,” saying it is “exacerbating inequality.” While many can take advantage of that rule, those who benefit the most are in the top 1 percent of income earners (earning more than $1 million of income). That group is disproportionately White: While 15 percent of White Americans are millionaires, only 2 percent of Black Americans are millionaires. A complete repeal of the stepped-up basis rule would raise an estimated $505 billion over 10 years. This week, though, the House Ways and Means Committee released its tax package, which drops that proposed reform. ...

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WSJ: Biden’s Dream Of An IRS Strike Team

Wall Street Journal editorial, Biden’s Dream of an IRS Strike Team:

When President Biden talks of bulking up the Internal Revenue Service, he must be fantasizing about some kind of SEAL Team 6 for audits. His plan is to put another $80 billion into IRS tax enforcement over 10 years, which the White House claims will raise $700 billion of revenue that’s being left on the table.

Not even close, according to a Thursday report by the Congressional Budget Office. The extra IRS funds, the CBO says, would probably produce only $200 billion. Blame it on a classic economic culprit, diminishing returns. Last year the IRS spent $12.3 billion and employed 75,773 full-time equivalents. ...

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WSJ: Can Congress Tax Wealth By ‘Deeming’ It Income?

Wall Street Journal op-ed:  Can Congress Tax Wealth by ‘Deeming’ It Income?, by David B. Rivkin Jr. & Andrew M. Grossman:

Charles and Kathleen Moore have done well, but they certainly aren’t billionaires. Yet the couple’s constitutional challenge stands to slam shut the door on a federal wealth tax like the one Sen. Elizabeth Warren wants to enact.

The story is complicated, though less so than the tax code. In the 1990s Mr. Moore, a software engineer, worked at Microsoft on its Office applications and grew close to a fellow programmer, Ravi Agrawal. ... Mr. Agrawal needed capital to get [his] business off the ground. He approached friends to invest in his new company, KisanKraft, and the Moores put up $40,000. ... The Moores have never received a dime from their investment. ... 

Then the tax bill came. As part of the Tax Cuts and Jobs Act of 2017, Congress reworked the way multinational corporations are taxed, limiting the amount that they had to pay on foreign income. Offsetting part of the cost was a new, one-time tax on earnings that certain foreign corporations had accumulated over the preceding 30 years but not distributed to their shareholders through dividends. The law deemed those earnings as 2017 income to the shareholders and taxed them on it. The Moores’ bill amounted to $15,000. They paid and are now suing for a refund, on grounds that the new tax is unconstitutional.

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Senate Democrats Eye Taxes On Stock Buybacks, Excess CEO Pay

Washington Post, Senate Democrats Eye Taxes on Stock Buybacks, Excess CEO Pay:

Senate Democrats are discussing a wider range of tax proposals than President Joe Biden has proposed, including levies on stock buybacks, carbon emissions and executive compensation, as part of a package of measures to help fund a ramping up in social spending.

One idea is applying an excise tax on stock buybacks or treating them as taxable dividends to shareholders, according to two people familiar with Senate Finance Committee discussions. Corporate deductions for executive compensation could also be limited, and companies could face an excise tax if their chief executive officer’s pay exceeds that of an average company worker by a certain ratio, the people said. ...

Treating corporate buybacks and dividends similarly for tax purposes would raise $70 billion to $80 billion a year, “making it a potentially attractive add-on to future budget bills that strive for revenue neutrality or deficit reduction,” law professors Daniel Hemel and Gregg Polsky wrote in a paper earlier this year [more here]. ...

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