Tax Policy In The Biden Administration

• Bloomberg, Clean Energy Companies Race to Prepare Tax Credit Applications
• Bloomberg, Hedge Funds Cash In on Covid-Era Tax Credit With IRS Backlog
• Bloomberg, Summers Sees Higher Fed Interest Rates, Increased Taxes
• Law360, Pressure For Corporate Tax Transparency May Just Be Beginning
• Los Angeles Times, Celebs Dodged Millions in L.A.’s ‘Mansion Tax.’ Meet the Industry Guarding Their Wealth

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Tax Policy In The Biden Administration

• Bloomberg, Biden Pressed to Limit Hydrogen Credits Key to New Industry
• Bloomberg, Flight of Affluent Taxpayers Catches Up With New York
• Bloomberg, IRS's $80 Billion Budget Boost Targeted for Cuts in Debt Talks
• Common Dreams, 'We Are Not Taxing the Very Wealthy Enough': Runaway Inequality About to Get Worse
• Financial Times, IRS Sets Its Sights on Tax Avoidance by the Super-Rich and Corporations

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Tax Policy In The Biden Administration

• Benzinga, How AI Is Closing The Wealth Gap
• Common Dreams, 'We Are Not Taxing the Very Wealthy Enough': Runaway Inequality About to Get Worse
• The Hill Op-Ed (Leslie Book (Villanova)), Don’t Let Politicians Punt the Political Football on Tax Reform Again
• Inequality.org, To Protect Our Children, Let’s Tax Our Rich
• Inequality.org, Why We Should Abolish the Super Rich
• New York Times, The Greatest Wealth Transfer in History Is Here, With Familiar (Rich) Winners

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Winners Of The 22nd Annual Law Student Tax Challenge

ABA Tax Section, Winners Of The 22nd Annual Law Student Tax Challenge:

J.D. Division 

1st Place: 

Tracy Costanzo and Amanda Hepinger
Syracuse University College of Law

2nd Place and Best Written: 

Ivan Rudd and Isaac Fuhrman Borgman
University of Miami School of Law

3rd Place: 

Justin Sung and Judd Baguioro 
University of California College of the Law, San Francisco

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Senate Hearing: The Rich Get Richer, Deficits Get Bigger — How Tax Cuts For The Wealthy And Corporations Drive The National Debt

The Senate Budget Committee held a hearing yesterday on The Rich Get Richer, Deficits Get Bigger: How Tax Cuts for the Wealthy and Corporations Drive the National Debt (video):

• Bruce Bartlett (Former Deputy Assistant Secretary, U.S. Treasury), Testimony
• Scott Hodge (Tax Foundation), Testimony
• Samantha Jacoby (Center on Budget and Policy Priorities), After Decades of Costly, Regressive, and Ineffective Tax Cuts, a New Course Is Needed 
• Bobby Kogan (Center for American Progress), Testimony
• Adam Michel (Cato Institute), Protecting American Families from Higher Taxes

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WSJ: IRS Weighs Creating A Government-Run Tax-Prep Option; Americans Don't Want It

Update: 

• IR-2023-103, IRS Submits Direct File Report to Congress; Treasury Department Directs Pilot to Evaluate Key Issues (May 16, 2023)
• IRS Report to Congress, Inflation Reduction Act §10301(1)(B): IRS-run Direct e-File Tax Return System (May 16, 2023)

Wall Street Journal, IRS Weighs Creating a Government-Run Tax-Prep Option:

The Biden administration is considering creating a government-run alternative to TurboTax and H&R Block, drawing resistance from Republicans and companies fearing a loss of business.

Democrats and consumer advocates have been pushing for the Internal Revenue Service to offer free online tax filing on its website, particularly for people with straightforward returns. Their core argument: Tax-preparation companies charge middle-income Americans for what advocates think should be a free public service.

The companies, meanwhile, are boosting lobbying spending and leaning on lawmakers to fight a change that could shrink their revenue, and they are emphasizing free options already available for taxpayers. They see the changes under consideration as a first step toward an even bigger threat in which the IRS could use information it gets from employers and other sources to prepare a first draft of taxpayers’ returns for them.

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NY Times: IRS Admits Black Americans Face More Audit Scrutiny

New York Times, I.R.S. Acknowledges Black Americans Face More Audit Scrutiny:

The Internal Revenue Service said on Monday that Black taxpayers have been far more likely to be audited than others and that it is considering changes to its case selection process to address discrimination in how the tax code is enforced.

The acknowledgment came after the publication of research this year showing that Black taxpayers were disproportionately audited, prompting calls from members of Congress for a review into the methodology and algorithms that help determine who is selected. The tax collection agency, which received an $80 billion infusion in funding last year as part of the Inflation Reduction Act, has said it would work to make the system more equitable.

“While there is a need for further research, our initial findings support the conclusion that Black taxpayers may be audited at higher rates than would be expected given their share of the population,” Daniel Werfel, the I.R.S. commissioner, wrote in a letter to Senator Ron Wyden of Oregon, the Democratic chairman of the Senate Finance Committee.

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Tax Policy In The Biden Administration

• Cato Institute, Will the Added IRS Funding Create Value?
• Conversable Economist, Replace Federal Taxes with a National Sales Tax?
• Decrypt, President Biden Decries Tax Loopholes for 'Wealthy Crypto Investors'
• Forbes, Keep An Eye On These Tax Proposals, Despite Congressional Gridlock
• Fortune, The Scourge of ‘Heir Pollution’ Shows That the Rich Are Exacerbating Climate Change—and the Dynastically Wealthy Are Leading the Charge

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Tax Policy In The Biden Administration

• Bloomberg, Crypto Traders Avoiding Billions in Tax by ‘Loss Harvesting’
• Bloomberg, Judge Dismisses Trump’s Lawsuit Against NY Times Over Report on His Taxes
• Bloomberg, The IRS Needs a Tech Overhaul. Even the GOP Is Rooting for Them
• Bloomberg, New York’s Remote Work Tax Rule Needs Revisiting, Judge Hears
• Bloomberg, Taxing Wealthy Dynasties Seen Backfiring in States Like New York

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WSJ Op-Ed: Congress Gave $80 Billion To A Lawless IRS

Wall Street Journal Op-Ed:  Congress Gave $80 Billion to a Lawless IRS, by Travis Nix (J.D. 2023, Georgetown):

After nearly eight months of deliberation, the Internal Revenue Service has finally released a lightly detailed plan for how to spend the additional $80 billion Congress allotted in 2022. Taxpayers should be dubious of IRS promises to use this funding to ensure fairer and more lawful tax-code enforcement. The few details in the report’s vague language indicate that the IRS wants to use its newfound money to enforce sections of the tax code that courts struck down twice as unlawful last year. Congress should stop funding the illegal purposes at the IRS.

One of the few definite action items the IRS included in its 150-page report was an enforcement objective to levy tax penalties against taxpayers engaging in “listed transactions”: practices the service has labeled as prone to tax abuse. These currently consist of a series of 36 transactions that the IRS has simply published on its website and in taxpayer notices over the last two decades. The IRS enforces and cites these notices as having the force of law even though taxpayers had no opportunity to voice concerns about these rules. Because the notices didn’t undergo the proper review process to become regulations, they can’t legally be enforced and should be nonbinding. ...

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Bernie Sanders Calls For 100% Billionaire Tax Rate: ’People Can Make It On $999 Million'

Politico, Bernie Sanders Calls For Income Over $1 Billion to be Taxed at 100%: ’People Can Make it on $999 Million:

Longtime wealth tax advocate Sen. Bernie Sanders has argued that all earnings above $1 billion in the U.S. should be confiscated by the government.

In an interview with HBO Max’s Who’s Talking to Chris Wallace, the Vermont senator was questioned about his long-standing view that billionaires should not exist.

“Are you basically saying that once you get to $999 million, the government should confiscate all the rest?” he was asked—to which Sanders responded: “Yeah.”

“You may disagree with me, but I think people can make it on $999 million,” Sanders added. “I think that they can survive just fine.”

Earlier this year, Sanders published It’s OK to Be Angry About Capitalism. During Friday’s show, he responded to questions on whether billionaires could actually boost the economy by creating employment.

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Tax Prof Twitter Problems: Suspension, Hack

Andy Grewal (Iowa) and Daniel Hemel (NYU) are two of the more active Tax Profs on twitter. Both have lost access to their accounts for different reasons.

Twitter suspended Andy's account (@AndyGrewal) as a result of a twitter conversation with a friend (Andrew Dhuey) over the proper response to the alleged controversy around Justice Thomas. Andrew argued that serious ethical violations had occurred and he sought a monetary penalty. I thought this was a grave overreaction. To illustrate my position, I sarcastically said that I would "prefer the guillotine" for Justice Thomas.

Twitter concluded that the tweet was an attempt to "threaten, incite, glorify, or express a desire for harm or violence:"

Many people, including Andrew, tried to explain that Andy's silly tweet did no such thing. But Twitter has rejected his appeals. Andy engaged in some self-help and is now tweeting on a new account (@ProfGrewal) but has lost thousands of followers.

Daniel (@DanielJHemel) took to Slate to announce My Twitter’s Been Hacked. But Hasn’t Everyone’s?:

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This Week's Ten Most Popular TaxProf Blog Posts

Legal Education:

1. Paul Caron (Dean, Pepperdine), U.S. News Releases Preview Of 2024 Law School Rankings: Top 14 And New Methodology
2. Mike Spivey, Projected 2024 U.S. News Rankings For All 191 Law Schools
3. New York Times, Rankings Schadenfreude: Elite Law Schools Boycotted U.S. News But Now May Be Paying A Price
4. ABA Section of Legal Education, Employment Data for Graduating Law Class of 2022
5. Reuters, An Early Preview Of The 2025 U.S. News Law School Rankings: Employment
6. Derek Muller (Iowa), Some Law Schools Don't Understand The U.S. News Rankings, In Part Because Of The Opaque Methodology
7. Reuters, UC-Berkeley Law School Rolls Out AI Policy Ahead of Final Exams
8. Neil Buchanan (Florida), 5-Part Series On The Stanford Free Speech Controversy
9. Paul Caron (Dean, Pepperdine), U.S. News Delays Release Of Law School Rankings Again Due To 'Unprecedented Number Of Inquiries,' Including From Schools That Are Ostensibly Boycotting The Rankings
10. U.S. News FAQ, Law School Scholarly Impact Rankings

Tax:

1. Bryan Camp (Texas Tech), Lesson From The Tax Court: Prepare Once, File Twice
2. Bloomberg Businessweek, Inside the IRS’s Shrinking Band of Wealth Hunters
3. Bryan Camp (Texas Tech), Lesson From The Tax Court: The Actual Payment Doctrine
4. New York Times, IRS Whistleblower Claims Administration Is Mishandling Probe Of Hunter Biden
5. Bryan Camp (Texas Tech), Lesson From The Tax Court: Attend Carefully To Your Entity Baskets
6. Wall Street Journal, The Problem With The IRS Pledge Not To Audit More Earners Under $400,000
7. BYU News, ChatGPT Bombs Accounting And Tax Exams: 47% v. 77% For Students
8. SSRN, The Top Five New Tax Papers
9. Young Ran (Christine) Kim (Cardozo), Review Of The Internet Tax Freedom Act At 25, By Walter Hellerstein (Georgia) & Andrew Appleby (Stetson)
10. Roundup, Tax Policy In The Biden Administration

Faith: 

1. Paul Caron (Dean, Pepperdine), Pepperdine Caruso Law 3L Commissioning Service

The Taxman Will Eventually Come For AI, Too

Bloomberg Opinion:  The Taxman Will Eventually Come for AI, Too, by Tyler Cowen (George Mason; Google Scholar):

There are a lot of dramatic profound questions about AI, but some of the most important ones are mundane. For instance: Should AI agents, when they perform productive work, be required to pay taxes?

AI creations can already proofread, provide medical advice, act as tutors, write software and much more. More to the point, there are now autonomous AI agents, which can in turn create autonomous AI agents of their own. So it won’t be possible to assign all AI income to their human or corporate owners, as in many cases there won’t be any.

One option is to let AI bots work tax-free, like honeybees do. At first that might make life simple for the IRS, but a problem of tax arbitrage will arise.

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Tax Policy In The Biden Administration

• The American Prospect, Sen. Tim Scott’s ‘Land of Opportunity’ (Zones)
• Bloomberg, Ken Griffin’s Suit Over IRS Data Leak Should Be Tossed, US Says
• Bloomberg, A Tax Loophole Makes EV Leasing a No-Brainer
• Bloomberg Editorial, America’s Broken Tax System Is Punishing R&D
• Cato Institute, Comparing the Cost of IRA Energy Tax Credits to Expensing

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ChatGPT Bombs Accounting And Tax Exams: 47% v. 77% For Students

BYU News, ChatGPT Can’t Ace This Test, But Experts Think It Soon Will … What It Means For Teaching:

Last month, OpenAI launched its newest AI chatbot product, GPT-4. According to the folks at OpenAI, the bot, which uses machine learning to generate natural language text, passed the bar exam with a score in the 90th percentile, passed 13 of 15 AP exams and got a nearly perfect score on the GRE Verbal test.

Inquiring minds at BYU and 186 other universities wanted to know how OpenAI’s tech would fare on accounting exams. So, they put the original version, ChatGPT, to the test. The researchers say that while it still has work to do in the realm of accounting, it’s a game changer that will change the way everyone teaches and learns — for the better.

“When this technology first came out, everyone was worried that students could now use it to cheat,” said lead study author David Wood, a BYU professor of accounting. “But opportunities to cheat have always existed. So for us, we’re trying to focus on what we can do with this technology now that we couldn’t do before to improve the teaching process for faculty and the learning process for students. Testing it out was eye-opening.” ...

His co-author recruiting pitch on social media exploded: 327 co-authors from 186 educational institutions in 14 countries participated in the research, contributing 25,181 classroom accounting exam questions. They also recruited undergrad BYU students (including Wood’s daughter, Jessica) to feed another 2,268 textbook test bank questions to ChatGPT. The questions covered accounting information systems (AIS), auditing, financial accounting, managerial accounting and tax, and varied in difficulty and type (true/false, multiple choice, short answer, etc.).

Although ChatGPT’s performance was impressive, the students performed better. Students scored an overall average of 76.7%, compared to ChatGPT’s score of 47.4%. On a 11.3% of questions, ChatGPT scored higher than the student average, doing particularly well on AIS and auditing. But the AI bot did worse on tax, financial, and managerial assessments, possibly because ChatGPT struggled with the mathematical processes required for the latter type.

The ChatGPT Artificial Intelligence Chatbot: How Well Does It Answer Accounting Assessment Questions?:

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Raskolnikov: Yes, Tax The Rich—And Also The Merely Affluent

Alex Raskolnikov (Columbia), Yes, Tax the Rich—and Also the Merely Affluent:

Most Americans believe that economic inequality is too high, and many think that higher taxes are the answer. There is some disagreement about who should pay higher taxes, but there is broad agreement about who should not. At least since the heyday of the Occupy Wall Street movement, “We Are the 99 Percent” has been the dividing line.

“Those in the 1 percent are walking off with the riches, but in doing so they have provided nothing but anxiety and insecurity to the 99 percent,” explained Nobel laureate Joseph Stiglitz in his 2012 book The Price of Inequality. The “main fault line in the American society is . . . between the 1 percent and everybody else,” insisted celebrated economists Emanuel Saez and Gabriel Zucman in their book The Triumph of Injustice, published amid the 2020 presidential campaign. Dramatic wealth tax proposals by Democratic presidential candidates Senators Bernie Sanders and Elizabeth Warren, chair of the tax-writing committee Senator Ron Wyden, and even an income taxation plan by Representative Alexandria Ocasio-Cortez do not come close to hiking taxes on anyone below the 1 percent threshold. The same is true of the suggestions by numerous tax academics considering how to tax the rich.

But there are plenty of reasons to expand the conversation about higher taxes to some of those in the 99 percent—specifically those with incomes in the 90th to 99th percentile. Let us call them the affluent. These Americans belong to households making between approximately $150,000 and $500,000 a year. A family needs to earn more than twice the median income to join the affluent circle, and those in its upper echelon earn seven times the median. Yet as concerns about inequality have saturated public and academic discourse, the affluent have stayed out of the spotlight. They are not that rich, after all; they are the 99 percent.

There is no doubt that those in the top 1 percent are the winners in today’s economy. But there is plenty of evidence to suggest that they are not the only winners. Whether we consider income, wealth, opportunity, political influence, tax policy, or cultural resonance, the case for higher taxes on the affluent as well as the 1 percent is much stronger than current political discussion suggests. Inequality is indeed a serious problem, and higher taxes are needed to address it. But it is misguided to focus all attention solely on the top 1 percent. ...

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NY Times: IRS Whistleblower Claims Administration Is Mishandling Probe Of Hunter Biden

New York Times, I.R.S. Official Is Said to Assert Political Meddling in Hunter Biden Inquiry:

As Justice Department officials weigh whether to indict Hunter Biden, the investigator overseeing the Internal Revenue Service’s portion of the case has come forward with allegations of political favoritism in the inquiry that stand to add to the already fraught circumstances facing the department.

Congressional leaders learned of the investigator’s allegations on Wednesday when a lawyer sent them a letter asking for whistle-blower protections for his client. The letter stated that the unnamed client, identified as an “I.R.S. criminal supervisory special agent who has been overseeing” an ongoing and sensitive case, had knowledge of an array of misconduct including political meddling, according to a copy of the letter obtained by The New York Times.

While the letter from the lawyer, Mark D. Lytle, did not name Hunter Biden, Senate and House Republicans put out statements specifying that it was referring to him. The disclosure fed claims by congressional Republicans that a Justice Department run by the president’s political appointees could not be trusted to make a decision about his son based on the facts and law.

The letter said the client had information that would contradict sworn testimony to Congress from a senior political appointee, an apparent reference to Attorney General Merrick B. Garland, who has offered assurances that the U.S. attorney in Delaware, David C. Weiss, who was appointed by President Donald J. Trump, would be free to run the investigation.

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Tax Policy In The Biden Administration

• Bloomberg, Death Taxes Are Paid By the Wrong People
• Center for American Progress, Biden Tax Proposals Would Correct Inequities Created by Trump Tax Cuts and Raise Additional Revenues
• The Hill, The Racial Wealth Gap Won’t Budge: There’s a Tax For That
• Inequality.org, Donor-Advised Funds Now Take in a Fifth of Individual Charitable Giving
• Inequality.org, To Fight Inequality, Tax the Patriarchy and Invest in Care

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Fox Can Deduct $787 Million Defamation Settlement Over Vote Fraud Claims

New York Times, The Tax Break That Could Save Fox Millions in Its Dominion Settlement:

The payout by Rupert Murdoch’s media empire to settle defamation claims by the voting machine company may be less costly than first thought. ...

Fox can take a tax deduction from the settlement, Lever News reports. ... It is unclear how much Fox will save, though a spokesman confirmed that tax deductibility is at play. Lever News estimated that the company could reap as much as $213 million in tax savings.

The Lever, Fox Can Claim Tax Writeoff For Defamation Settlement:

The company says it can deduct the cost of its $787 million payout to Dominion over its election lies.

Fox’s massive settlement with private equity-backed voting machine company Dominion Voting Systems didn’t just spare the conservative news organization from a lengthy public defamation trial or a full public reckoning for its election lies — it could also mean a tax break as large as $213 million, according to a Lever review.

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Inside The IRS’s Shrinking Band Of Wealth Hunters

Bloomberg Businessweek, Inside the IRS’s Shrinking Band of Wealth Hunters:

Former auditors dish on truant taxpayers, decrepit tech and why $80 billion might not be enough to fix everything that’s wrong.

If you ever meet an off-duty Internal Revenue Service auditor, they probably won’t admit where they work. “What do you do?” is “always a party killer,” says former agent Elyse Katz. Best to keep it vague, she says, and hope that “accountant” is boring enough to move the conversation along to another topic.

Few things make Americans more anxious than an IRS agent in their midst, even when the occasion is social rather than, say, an audit. It’s the audit that inspires many people’s fear of the agency, helping it poll as the least trusted of major federal departments. Last year, when President Joe Biden and congressional Democrats secured almost $80 billion in extra IRS funding across the next decade under the Inflation Reduction Act, it didn’t take long for the agency’s critics to raise the prospect of rampant nosiness, with Republican politicians claiming that an army of 87,000 armed agents would soon be poking through Americans’ finances.

The notion was absurd, to say the least, and not only because almost no IRS agents carry guns. Across the past few decades, the agency has been decimated by cuts, to the point that by most measures it’s the worst-funded major federal department. It’s down to 84,000 (almost all unarmed) workers, a loss of 10,000 employees since 2010 and about the same as in 1974, when the US had 120 million fewer people and an economy a quarter of its current size. The IRS’s most experienced revenue agents have departed at an even higher rate than other employees, leaving 99.9% of the most complex and opaque type of business returns unexamined and millionaires’ and billionaires’ audit rates tumbling by 80% to 90%.

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IRS: Forced Sterilization Payments Are Excludible From Income Under § 104(a)(2)

IR 2023-81 (Apr. 14, 2023), IRS Issues Frequently Asked Questions on Compensation Payments Made by States for Forced Sterilization:

The Internal Revenue Service today issued frequently asked questions (FAQs) to provide guidance for victims who have received state compensation payments for forced, involuntary, or coerced sterilization, in Fact Sheet FS-2023-11.

Some states have enacted legislation to compensate victims of forced sterilization under state programs. These states have made payments to those victims pursuant to the legislation. The FAQs address the federal income tax consequences of these payments.

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IRS Releases 2022 Data Book: Audit Rates Fell, But $80 Billion New Funding Will Reverse Trend With 7,000 More Tax Accountants, Attorneys, And Agents To Target The Rich

IR-2023-82, IRS Releases Fiscal Year 2022 Data Book Describing Agency’s Activities:

The Internal Revenue Service today issued its annual Data Book detailing the agency's activities during fiscal year 2022 (Oct. 1, 2021 – Sept. 30, 2022), including revenue collected and tax returns processed.

In many areas, the statistics in the 2022 Data Book reflect the impact that past resource constraints had on the agency's ability to provide adequate taxpayer service and address compliance issues, including audits of higher income taxpayers, partnerships, and large corporations. ...

For the past decade, the IRS has seen an increase in the number of returns filed paired with a decrease in resources available for examinations particularly for the most complex tax returns of high-income and high-wealth individuals, large corporations, and complex partnerships. Going forward, as the IRS moves to implement the Strategic Operating Plan released earlier this month, the agency is focused on pursuing high-income and high-wealth individuals, complex partnerships and large corporations that are not paying the taxes they owe. As a result, the IRS has no plans to increase the audit rate for households making less than $400,000.

The 2018 information is the most recent year we have final audit rate data because it is the most recent tax year for which the statutory period has closed, meaning in most cases no new audits will be started and the audit coverage rates should be final.

Typically, audit rates for higher-income categories increase over time as new audits are opened during the statutory period. This means the audit numbers for higher-income taxpayers listed in the 2022 Data Book Table 17 will increase over time for tax years within the statutory period; the final exam rates for these taxpayers will be significantly higher in future years.

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Tax Policy In The Biden Administration

• Bloomberg, Bankman-Fried-Backed Wealth Tax Effort Struggles After FTX Crash
• Bloomberg, Chicago Faces Tax Hikes After Progressive’s Surprise Mayoral Win
• Bloomberg, Crypto Donations to Charity Falter on Fuzzy Tax Rules, Value Dips
• Bloomberg, Free IRS TurboTax Competitor Is Closer After Biden Funding
• Bloomberg, How 2022 Became a Record Year for US Income Taxes

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ProPublica IRS Files: The Ultrawealthy Get Huge Tax Breaks For Their Private Planes And Luxury Yachts

ProPublica, Private Planes and Luxury Yachts Aren’t Just Toys for the Ultrawealthy. They’re Also Huge Tax Breaks.:

Flying to Ireland to inhale the seaside air as you drive a golf ball into the scenic distance. Crossing the country to reach your enormous yacht, which is ready for your Hudson River pleasure cruise. Hosting a governor’s wife on your very own aircraft. These are only a few of the joys that the richest Americans have experienced in recent years through their private jets. And what made them all the sweeter is that they came with a tax write-off.

Over the past two years, ProPublica has documented the many ways that the ultrawealthy avoid taxes. The biggest or most daring maneuvers scale in the billions of dollars, and while the tax deductibility of private jets isn’t the most important feature of U.S. tax law, the fact that billionaires’ luxury rides come with millions in tax savings says a lot about how the system really works.

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WSJ: The Problem With The IRS Pledge Not To Audit More Earners Under $400,000

Wall Street Journal, The Problem With the IRS Pledge Not to Audit More Earners Under $400,000:

What are your odds of being audited? ...

The audit rate sounds straightforward: the share of taxpayers with a given level of reported income who are audited. In fact, a look at how that number is calculated reveals some important challenges for U.S. tax collection.

The audit rate has newfound relevance because of the IRS’s new $80 billion in funding. Treasury Secretary Janet Yellen had directed that “any additional resources—including any new personnel or auditors that are hired—shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels.” ...

At all income levels, the audit rate has plunged over the past decade amid declining IRS resources and head count, as a Government Accountability Office report released last year shows. 

$400,000 is a fairly high threshold—fewer than 2% of tax returns have adjusted gross income above that, according to IRS data. But why pursue those families when there might be multimillionaires and billionaires dodging millions of dollars in taxes?

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WSJ: The Global Minimum Tax Shakedown

Wall Street Journal Editorial, The Global Minimum Tax Shakedown:

The Biden administration wants to make the world safer for tax increases. That’s the message the White House has sent by enjoining the Organization for Economic Cooperation and Development to agree on a new global levy. The proposal, thus far endorsed by 137 nations, imposes a 15% global minimum tax on multinational corporations with sales of over €750 million and a profits tax levied where sales are made—not where profits are reported—on companies with over $20 billion of revenue.

It isn’t difficult to figure out who would bear the brunt of this economic burden. Neither tax is calculated to include the amortization of intellectual property, and both would primarily hit American corporations, which are bigger and more profitable and own more intellectual property than their international competitors. Though a Democratic Congress rejected the tax last year, President Biden has now spearheaded the international agreement to let foreign nations tax American companies to collect the equivalent of the tax on their U.S. earnings if Congress won’t impose the tax. ...

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Tax Policy In The Biden Administration

• Bloomberg, SALT Tax Break Gets Fresh Push From New York-Area Republicans
• Bloomberg, U.S. Property Taxes Rose Twice as Fast Last Year Than in 2021
• Bloomberg, A Public Tax Filing Option Is One Step Closer To Fruition
• Forbes, Bernie Sanders And Elizabeth Warren Win A Battle In The War On The Taxation Of Grantor Trusts
• Forbes, NIL Madness: Should College Sports Revenue Be Tax Exempt?

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The Trump Indictment, Tax Law, And Conway Twitty

New York Times, A Surprise Accusation Bolsters a Risky Case Against Trump:

The unsealed indictment against former President Donald J. Trump on Tuesday laid out an unexpected accusation that bolstered what many legal experts have described as an otherwise risky and novel case: Prosecutors claim he falsified business records in part for a plan to deceive state tax authorities.

For weeks, observers have wondered about the exact charges the Manhattan district attorney, Alvin L. Bragg, would bring. Accusing Mr. Trump of bookkeeping fraud to conceal campaign finance violations, many believed, could raise significant legal challenges. That accusation turned out to be a major part of Mr. Bragg’s theory — but not all of it.

“Pundits have been speculating that Trump would be charged with lying about the hush money payments to illegally affect an election, and that theory rests on controversial legal issues and could be hard to prove,” said Rebecca Roiphe, a New York Law School professor and former state prosecutor.

“It turns out the indictment also includes a claim that Trump falsified records to commit a state tax crime,” she continued. “That’s a much simpler charge that avoids the potential pitfalls.” ...

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Hemel: New York’s Child Tax Credit Choice

Gotham Gazette Op-Ed:  New York’s Child Tax Credit Choice, by Daniel Hemel (NYU; Google Scholar):

When does childhood begin? For at least a half-century, that question has been one of the most contentious in American politics, with participants in debates over abortion and reproductive rights variously arguing that conception, viability, birth, or any number of other milestones marks the point at which a fetus becomes a child entitled to the full protection of the law.

But pretty much everyone agrees that whenever childhood begins, it’s well before age 4.

Yet under New York law, children under the age of 4 are categorically ineligible for the state child tax credit, making New York the only state in the nation with a child credit that excludes infants and toddlers. Both the State Senate and Assembly endorsed proposals this month that would fix that flaw, but Governor Kathy Hochul’s budget for fiscal year 2024 maintains the exclusion of New York’s youngest children from the credit, which maxes out at $330 per year.

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Tax Policy In The Biden Administration

• Bloomberg, A $100K Salary Feels Like $36K in NYC After Taxes
• Bloomberg, Credit Suisse Accused of Aiding More Tax Evasion During Broader Tumult
• Bloomberg, Credit Suisse Report Prompts Calls to Strengthen IRS Enforcement
• Bloomberg, Global Tax Deal Moves Ahead Sparking New Republican Resistance
• Bloomberg, Projected Corporate Minimum Tax Receipts Buffeted by IRS Notice

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WSJ: The IRS Makes A Strange House Call On Journalist Matt Taibbi

Wall Street Journal Editorial, The IRS Makes a Strange House Call on Matt Taibbi:

Democrats are denouncing the House GOP investigation into the weaponization of government, but maybe that’s because Republicans are getting somewhere. That includes new evidence that the Internal Revenue Service may be targeting a journalist who testified before the weaponization committee.

House Judiciary Chairman Jim Jordan sent a letter Monday to IRS Commissioner Daniel Werfel and Treasury Secretary Janet Yellen seeking an explanation for why journalist Matt Taibbi received an unannounced home visit from an IRS agent. We’ve seen the letter, and both the circumstances and timing of the IRS focus on this journalist raise serious questions.

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Tax Policy In The Biden Administration

• Bloomberg, Biden Reaches Moment of Truth for Electric Vehicle Tax Credits
• Bloomberg, Logging Into Zoom at the Beach Could Land You a Tax Bill
• Bloomberg, You’re Facing a Big Tax Bill If You Hold These Mutual Funds
• Center Square, Federal Legislation Hits Bankers Dumping Pre-Failure Stock With 100% Tax on Profits
• Fortune, U.S. Banks Are Sitting on $1.7 Trillion in Unrealized Losses. That’s Not a Problem—Until It Is

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ChatGPT Thinks I Am Way More Interesting Than I Am

Write a bio of Pepperdine Caruso Law School Dean Paul Caron

Paul Caron is an American legal scholar and academic administrator who currently serves as the Dean of the Pepperdine Caruso School of Law. He was born in the United States and grew up in the Chicago area.

Caron graduated with honors from the University of Illinois at Urbana-Champaign, where he earned a Bachelor of Science in Accountancy. He then went on to earn a law degree from Yale Law School, where he was an editor of the Yale Law Journal.

After law school, Caron worked as an attorney in the tax department of the law firm Sullivan & Cromwell in New York City. He later joined the faculty of the University of Cincinnati College of Law, where he taught courses in tax law and served as the Associate Dean for Academic Affairs.

In 2003, Caron joined the faculty of the University of San Diego School of Law, where he held the rank of Professor of Law and served as the Associate Dean for Research and Faculty Development. During his time at USD, Caron became well-known for his scholarship in tax law and his popular TaxProf Blog, which he founded in 2004.

In 2017, Caron was appointed as the 7th Dean of the Pepperdine Caruso School of Law. In this role, he has overseen significant changes at the law school, including the construction of a new campus in downtown Los Angeles and the creation of new programs in areas such as dispute resolution and entertainment, media, and sports law.

Throughout his career, Caron has been a prolific scholar and writer, with more than 50 published articles and book chapters to his credit. He is widely regarded as one of the leading experts in the field of tax law, and has been frequently cited in the national media on issues related to tax policy and reform.

Caron has also been active in the legal community, serving on the board of directors of the American Tax Policy Institute and as a member of the executive committee of the Tax Section of the American Bar Association. He has received numerous awards and honors for his scholarship and teaching, including the University of Cincinnati College of Law's Goldman Prize for Excellence in Teaching and the American Bar Association's Section of Taxation Distinguished Service Award.

In addition to his academic and professional accomplishments, Caron is also an accomplished musician and photographer. He has released several albums of original music and his photographs have been featured in exhibitions and publications around the world.

Can you guess the number of factual errors?

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ProPublica IRS Files: Wealthy Executives Make Millions Trading Competitors’ Stock With Remarkable Timing

ProPublica, The IRS Files: Wealthy Executives Make Millions Trading Competitors’ Stock With Remarkable Timing:

Never-before-seen IRS records show that CEOs are sometimes making multimillion-dollar bets on the stocks of direct competitors and partners — and doing so with exquisite timing.

On Feb. 21, 2018, August Troendle, an Ohio billionaire, made a remarkably well-timed stock trade. He sold $1.1 million worth of shares of Syneos Health the day before a management shake-up caused the company’s stock to plunge 16%. It was the largest one-day drop that year for Syneos’ share price.

The company was one Troendle knew well. He is the CEO of Medpace, one of Syneos’ chief competitors in a niche industry. Both Syneos and Medpace handle clinical trials for biopharma companies, and that year they had jointly launched a trade association for companies in the field.

The day after selling the Syneos shares in February 2018, Troendle bought again — at least $3.9 million worth. The value of his Syneos stake then rose 75% in the year that followed.

In February 2019, Troendle sold much of that position, netting $2.3 million in profit. Two days later, Syneos disclosed that the Securities and Exchange Commission was investigating its accounting practices. The news sent the company’s shares tumbling. Troendle’s sale avoided a 25% loss, the stock’s largest decline in such a short period during either that or the previous year. (Troendle declined to comment.)

The Medpace executive is among dozens of top executives who have traded shares of either competitors or other companies with close connections to their own. A Gulf of Mexico oil executive invested in one partner company the day before it announced good news about some of its wells. A paper-industry executive made a 37% return in less than a week by buying shares of a competitor just before it was acquired by another company. And a toy magnate traded hundreds of millions of dollars in stock and options of his main rival, conducting transactions on at least 295 days. He made an 11% return over a recent five-year period, even as the rival’s shares fell by 57%.

These transactions are captured in a vast IRS dataset of stock trades made by the country’s wealthiest people, part of a trove of tax data leaked to ProPublica. ProPublica analyzed millions of those trades, isolated those by corporate executives trading in companies related to their own, then identified transactions that were anomalous — either because of the size of the bets or because individuals were trading a particular stock for the first time or using high-risk, high-return options for the first time.

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Tax Policy In The Biden Administration

• Americans for Tax Fairness, The Biden Tax & Investment Budget
• Bloomberg, Amazon Tax Structure Like Something Out of a Bond Movie, EU Says
• Bloomberg, Better-Funded IRS Should Increase Audits of the Top 1%, Democrats Say
• Bloomberg, Biden’s Tax Plan Stings Some Two-Career Couples
• Bloomberg Editorial, Biden’s Budget Refuses to Face Reality
• Common Dreams, Biden Tax Boost Targeting the Rich Called 'Fair, Popular, and Long Overdue'

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Treasury Releases Greenbook On Tax Proposals In Biden's FY24 Budget

• U.S. Department of the Treasury Releases Greenbook, Outlining Tax Proposals to Reduce the Deficit, Expand Support for Working Families, and Ensure the Wealthy and Large Corporations Pay their Fair Share
• General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposals
• Revenue Estimates of the Administration's Fiscal Year 2024 Revenue Proposals

• Bloomberg, Biden Budget Targets Tax Breaks for Private Equity, Crypto, Fossil Fuels
• Bloomberg, Biden Proposal Tries to Align US With Global Minimum Tax
• Bloomberg, Biden Seeks to Roll Back Trump Tax Breaks
• Bloomberg, Biden Tax Plan Stings Some Two-Career Couples
• Bloomberg, Biden Tax-the-Rich Budget Raises Capital-Gains Rates To 45%
• Cato Institute, The Eight Biggest Tax Increases in Biden’s Budget
• Cato Institute, President Biden’s Budget Misses the Mark
• The Hill, Biden’s $5 Trillion Tax Gambit Catches Congress by Surprise 
• Greg Mankiw (Harvard), The Budgetary Trilemma
• New York Times, Biden’s $6.8 Trillion Budget Proposes New Social Programs and Higher Taxes
• New York Times Op-Ed (Paul Krugman), Budget Wars: This Time Is Different

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Tax Policy In The Biden Administration

• Joe Biden (New York Times Op-Ed), My Plan to Extend Medicare for Another Generation
• Bloomberg, AI Can Help the IRS Catch Wealthy Tax Cheats
• Bloomberg, Biden Budget to Target Tax Breaks for Private Equity, Crypto, Fossil Fuels
• Bloomberg, Biden Proposal Tries to Align US With Global Minimum Tax
• Bloomberg, Biden Seeks to Roll Back Trump Tax Breaks
• Bloomberg, Biden to Urge 25% Billionaire Tax, Levies on Rich Investors

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ChatGPT's Tax Advice Was Wrong 100% Of The Time

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Bloomberg, ChatGPT Can Give Tax Advice, But You Really Get What You Pay For:

ChatGPT can write essays, poetry, letters, and more, so we posed the question—can it do our taxes? Our company, TaxBuzz, decided to take the technology for a test drive, asking, “What status I should use when filing my taxes?”

It offered typical definitions of the IRS’ various filing options. Then came the best advice of the day: “You can consult a tax professional to help determine the best option for you.” While ChatGPT might be able to give you a CliffsNotes-style answer to your query, expecting a how-to tip or complete strategy isn’t in the cards. ...

When it comes to analyzing the tax code, expertly trained humans have access to trusted and verified libraries of information that they can use to verify tax strategy claims. ChatGPT simply doesn’t have the same level of brainpower or education as a human tax professional. ...

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Tax Policy In The Biden Administration

• Bloomberg, Santos Proposes SALT Increase as New Yorkers Seek His Ouster
• Bloomberg, Senators Eye Housing Bills for Bipartisan Tax Policy Push
• Cato Institute, 14 Ways the Tax Code Subsidizes Higher Education
• CNBC, The Racial Retirement Savings Gap Remains Wide – How These State IRA Programs Are Working Toward Equity
• Don Griswold (Bloomberg Tax), California Must Abolish the Ultrarich’s State Income Tax Dodge

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Corporations Are Laughing At The Idea Of Paying Taxes As Nearly $1 Trillion Goes Offshore Every Year

Fortune Op-Ed:  Corporations Are Laughing at the Idea of Paying Taxes as Nearly $1 Trillion Goes Offshore Every Year, Researchers Say, by Ludvig Wier (University of Copenhagen; Google Scholar) & Gabriel Zucman (University of California, Berkeley; Google Scholar):

About a decade ago, the world’s biggest economies agreed to crack down on multinational corporations’ abusive use of tax havens. This resulted in a 15-point action plan that aimed to curb practices that shielded a large chunk of corporate profits from tax authorities.

But, according to our estimates, it hasn’t worked. Instead of reining in the use of tax havens – countries such as the Bahamas and Cayman Islands with very low or no effective tax rates – the problem has only gotten worse.

By our reckoning, corporations shifted nearly $1 trillion in profits earned outside of their home countries to tax havens in 2019, up from $616 billion in 2015, the year before the global tax haven plan was implemented by the group of 20 leading economies, also known as the G-20. ...

In 2019, the total government tax loss globally was $250 billion. U.S. multinational corporations alone accounted for about half of that, followed by the U.K. and Germany.

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NY Times: IRS Decision Not To Tax State Stimulus Payments Carries Fiscal Cost

New York Times, I.R.S. Decision Not to Tax Certain Payments Carries Fiscal Cost:

More than 20 state governments, flush with cash from federal stimulus funds and a rebounding economy, shared their windfalls last year by sending residents one-time payments.

This year, the Biden administration added a sweetener, telling tens of millions taxpayers that they do not need to pay federal taxes on those payments.

That decision by the Internal Revenue Service, while applauded by some tax experts and lawmakers, could cost the federal government as much $4 billion in revenue when Washington is struggling with a ballooning federal deficit and entering a protracted fight over the nation’s debt limit.

The I.R.S. ruling, after bipartisan pressure from lawmakers, was the latest move by the agency to forgo revenue this tax season.

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Tax Policy In The Biden Administration

• Bloomberg, Biden Can’t Pay for Everything by Just Taxing the Wealthy
• Bloomberg, Study on Racial Disparities in Audits Fuels Push for IRS Fix
• Bloomberg, Tax Breaks Threaten Remote Work If Cities Start Enforcing Them
• CBO, Defined Benefit and Defined Contribution Plans and the Distribution of Family Wealth: Working Paper 2023-02
• FactCheck.org, The Facts on Sen. Scott’s Claim That Biden Is a ‘Tax Cheat’

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U.S. Tax Court's Tax Trailblazers: Larry D. Bailey

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

Please join the United States Tax Court as its Tax Trailblazers Series continues for a Black History Month interview with Larry D. Bailey today at 7:00 - 8:15 PM EST (register here).

Larry D. Bailey is an accounting and tax professional with over 40 years of experience. Notably, he was one of the first African American partners at major accounting firm.

A certified public accountant, he holds a degree in accounting from Southern Illinois University at Carbondale and an MBA in Finance from the University of Pennsylvania’s Wharton Graduate School of Business. 

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Tax Policy Center: Itemized Deductions Benefit Whites More Than Blacks And Hispanics

Benjamin R. Page, Tracy Gordon & Aravind Boddupalli (Tax Policy Center), Providing Changemakers The Data They Need To Tackle Racial Inequities In The US Tax Code:

[A]cross all income categories, itemized deductions disproportionately benefit White taxpayers (figure 2). Overall, itemized deductions boost the after-tax incomes of units classified as White by 0.7 percent, whereas those classified as Black gain an average of 0.4 percent, and those classified as Hispanic an average of 0.2 percent. Those differences occur in large part because itemized deductions primarily benefit higher-income households, among whom Black and Hispanic households are underrepresented.

We also found White taxpayers and Black taxpayers benefit relatively more from itemized deductions than Hispanic households, even within the same income categories. For example, among those in the top income quintile (which receives almost 90 percent of the benefits of itemized deductions), itemized deductions raise the after-tax incomes of White taxpayers by an average of 1.1 percent, compared to 1.0 percent for Black taxpayers, and 0.6 percent for Hispanic taxpayers (figure 3).

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Tax Policy In The Biden Administration

• Bloomberg, Biden Restarts $10 Billion Tax Credit for Clean-Energy Makers
• Bloomberg, California Watchdog Clears Lawyer at Center of Tax-Sharing Deals
• Bloomberg, A Land Tax Won’t Make Cities More Affordable
• Congressional Budget Office, Projections of Realized Capital Gains Subject to the Individual Income Tax
• Foreign Policy in Focus, A World Fragmented By Inequality: The Best Way of Tackling Global Inequality Is to Tax the Rich

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WSJ Op-Ed: The Global Minimum Tax Crackup

Wall Street Journal Op-Ed:  The Global Minimum Tax Crackup, by Tyler Goodspeed (Hoover Institution, Stanford):

When Treasury Secretary Janet Yellen signed up the U.S. for the 137-country deal to establish a global minimum corporate tax rate of 15%, she hailed the move as a step toward ending the “race to the bottom” in corporate taxation.

Except it doesn’t. The global minimum tax deal actually gives tax havens an incentive to lower rates even further, and to grab any minimum top-up tax for themselves. Those top-up taxes—supplemental tax payments to ensure that every constituent entity of a large multinational enterprise is paying a minimum corporate tax rate of 15%—are about to set the U.S. on a collision course with its international tax treaties.

The reason for this unfortunate outcome lies in the mechanics of the new rules concerning qualified domestic minimum top-up taxes, or QDMTT. ...

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ProPublica: How The Wealthy Save Billions In Taxes By Skirting Wash Sale Rules

ProPublica, How the Wealthy Save Billions in Taxes by Skirting a Century-Old Law:

Congress outlawed tax deductions on “wash sales” in 1921, but Goldman Sachs and others have helped billionaires like Steve Ballmer see huge tax savings by selling stocks for a loss and then replacing them with nearly identical investments.

At first glance, July 24, 2015, seems to have been a brutal trading day for Steve Ballmer, the former Microsoft CEO. He dumped hundreds of stocks, losing at least $28 million.

But this was no panicked sell-off. Among the stocks Ballmer sold were those of the Australian mining company BHP and the global oil giant Shell. Had Ballmer lost confidence in BHP’s management? Was he betting that the price of oil would not soon recover? Not at all. That very day, Ballmer also bought thousands of shares in BHP and Shell.

Why would he sell and buy shares in the same companies on the same day? The answer is counterintuitive to the average person but obvious to a sophisticated investor: A loss, for tax purposes, is valuable; a big one can wipe out millions in potential taxes. Ballmer’s two-step process allowed him to use the loss to lower his taxes, while the near-simultaneous purchase meant he effectively hadn’t changed his investment.

Since 1921, claiming tax losses from so-called wash sales — selling shares of a company then buying them again within a short period — has been forbidden. But Ballmer collected his losses anyway because, technically, the types of shares he bought and sold weren’t the same.

Both Shell and BHP offered two different versions of their common stock. For each company, the two stocks were legally distinct, but they performed very similarly because, after all, they were shares in the same company.

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Tax Policy In The Biden Administration

• Bloomberg, More EVs to Qualify for Tax Credits After US Reverses Course
• Bloomberg, Vanguard’s Tax-Busting Fund Design May Finally Face Copycat
• Cato Institute, Biden’s Billionaire Tax
• Cato Institute, Liberty Taxed: A Blog on U.S. Tax Policy
• CNBC, Biden’s Billionaire Tax Is ‘Dead on Arrival’ in Congress
• Melinda Cooper, In This House We Prey: Managing Family Wealth For Dynastic Power

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End The Charitable Tax Exemption And Remove The Conflict Of Interest Baked Into Big Philanthropy

Chronicle of Philanthropy Op-Ed:  End the Charitable Tax Exemption and Remove the Conflict of Interest Baked Into Big Philanthropy, by Jeffrey Cain:

The genius of American philanthropy, it is often said, is that nearly all Americans, of every income level, give. But the tax exemptions and deductions in the Internal Revenue Code are not for all Americans, the overwhelming majority of whom don’t itemize their federal income taxes or claim the charitable deduction. Few will ever start their own foundation or open a donor-advised fund. Most don’t have a tax accountant, philanthropic adviser, or private bank account.

Instead, the formidable body of tax-exempt law, policy, and regulation created during the past 100 years provides the framework for Big Philanthropy. This is not solely about America’s wealthiest philanthropists and largest foundations. It is, rather, the system of charitable giving that bestows tax privileges upon donors in exchange for their charitable contributions. And it is a system powered by the conflict of interest inherent in those tax laws.

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