Paul L. Caron
Dean


Tuesday, July 23, 2019

WSJ: IRS Greenlights Tax Breaks For Buyers Of 23andMe Genetic Tests — Are Smartwatches Next?

Wall Street Journal, IRS Greenlights Tax Breaks for Buyers of 23andMe Genetic Tests:

23andmeBuyers of 23andMe Inc.’s genetic-testing kits will now have an easier time paying for the service with tax-advantaged health accounts after a favorable IRS ruling.

The decision offers more clarity to consumers and reduces the cost of the company’s service. It also highlights differences between the tax law’s permissive definition of medical care and health regulators’ more restrictive approach to direct-to-consumer testing products.

The Internal Revenue Service made the ruling in May and will release a redacted version next month. The Wall Street Journal reviewed the document before 23andMe disclosed it Monday.

The company sells genetic tests that provide consumers with information about a variety of things, including ancestry, wellness and traits such as food-taste preferences. The health reports provide information on whether individuals have gene variants that increase their risk for developing certain diseases.

That health portion of 23andMe’s test is medical care for tax purposes, the IRS determined. It made no ruling on ancestry testing from the same saliva sample and said taxpayers can use reasonable methods to separate the tax-advantaged piece from the bundled product.

23andMe says the decision means consumers can claim up to $117.74 of the $199 cost of a health-and-ancestry kit as medical care for tax purposes and is offering a calculator to handle taxes, shipping and discounts. Jacquie Haggarty, the company’s deputy general counsel, said any 2019 purchases should be eligible expenses.

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July 23, 2019 in IRS News, Tax, Tax News | Permalink | Comments (0)

Monday, July 22, 2019

WSJ: After U.S. Tax Overhaul, Corporate Rates Fall But Unevenly

Wall Street Journal, After U.S. Tax Overhaul, Corporate Rates Fall but Unevenly:

The U.S. tax overhaul has lowered tax rates for many companies, and many others that were already toward the bottom of the scale have been able to stay there so far, a Wall Street Journal analysis shows.

The lower rates follow tax-law changes Congress passed at the end of 2017. Since then, the Journal analysis shows, the median effective global tax rate for S&P 500 companies declined to 19.8% in the first quarter of 2019 from 25.5% two years earlier.

WSJ 4

That marked the third straight quarter below 20% and is consistent with the goals and structure of the tax overhaul, which lowered the federal corporate rate to 21% from 35%. The law’s authors wanted to help U.S. multinationals compete in foreign markets and aid domestic companies with high tax burdens, while reducing the value of tax breaks and making it harder to achieve single-digit tax rates.

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July 22, 2019 in Tax, Tax News | Permalink | Comments (1)

NY Times: State And Local Taxes Are Worsening Inequality

New York Times editorial, State and Local Taxes Are Worsening Inequality:

Economic inequality is on the rise in Illinois, and the state government is part of the problem. Illinois taxes low-income families at much higher rates than high-income families, asking the most of those who have the least.

Low-income households in Illinois pay about 14 cents in state and local taxes from every dollar of income, while the state’s most affluent households pay about 7 cents per dollar.

That gap between the poor and the wealthy in Illinois is one of the largest in any state, but the poor pay taxes at higher rates in 45 of the 50 states, according to a 2018 study by the Institute on Taxation and Economic Policy.

It’s a bipartisan phenomenon. The institute’s list of the 10 states with the most regressive tax systems — the states doing the most to increase inequality through taxation — also includes conservative Tennessee and Texas, purple Nevada and Florida, and liberal Washington.

Now Illinois is trying to take its name off the list. The state plans to hold a referendum next year on a constitutional amendment that would authorize the state to tax higher incomes at progressively higher rates — the system used by the federal government and 32 states. ...

NY Times

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July 22, 2019 in Tax, Tax News | Permalink | Comments (4)

TaxProf Blog Weekend Roundup

Saturday, July 20, 2019

This Week's Ten Most Popular TaxProf Blog Posts

Raj Chetty: The Economist Who Would Fix The American Dream

The Atlantic (Aug. 2019), The Economist Who Would Fix the American Dream:

AtlanticNo one has done more to dispel the myth of social mobility than Raj Chetty. But he has a plan to make equality of opportunity a reality.

By 1979, when Raj was born in New Delhi, his mother was a pediatrics professor and his father was an economics professor who had served as an adviser to Prime Minister Indira Gandhi.

When Chetty was 9, his family moved to the United States, and he began a climb nearly as dramatic as that of his parents. He was the valedictorian of his high-school class, then graduated in just three years from Harvard University, where he went on to earn a doctorate in economics and, at age 28, was among the youngest faculty members in the university’s history to be offered tenure. In 2012, he was awarded the MacArthur genius grant. The following year, he was given the John Bates Clark Medal, awarded to the most promising economist under 40. (He was 33 at the time.) In 2015, Stanford University hired him away. Last summer, Harvard lured him back to launch his own research and policy institute, with funding from the Bill & Melinda Gates Foundation and the Chan Zuckerberg Initiative.

Chetty turns 40 this month, and is widely considered to be one of the most influential social scientists of his generation. “The question with Raj,” says Harvard’s Edward Glaeser, one of the country’s leading urban economists, “is not if he will win a Nobel Prize, but when.”

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July 20, 2019 in Tax, Tax News | Permalink | Comments (1)

Friday, July 19, 2019

Tax Policy In The Trump Administration

Trump's Taxes And Tax Returns

Ex-Wife, Business Partner Denied Refund Beats IRS At Eleventh Circuit

Daily Business Review, Ex-Wife, Business Partner Denied Refund Beats IRS at Eleventh Circuit:

A woman denied a tax refund on $300,000 in income from a family business she paid back to her ex-husband, rather than paying back the federal government directly, has won a ruling from the U.S. Court of Appeals for the Eleventh Circuit in her case against the IRS [Mihelick v. United States, No. 17-14975 (11th Cir. June 29, 20190}.

“Inscribed above the main entrance of the Internal Revenue Service office in Washington, D.C., is a quotation from Supreme Court Justice Oliver Wendell Holmes Jr.: ‘Taxes are what we pay for a civilized society,’ ” Circuit Judge Robin Rosenbaum wrote. “An admirable outlook, yet even Justice Holmes would likely agree that it is uncivilized to impose taxes on citizens for income they did not ultimately receive. But that is precisely the result the government asks us to uphold today.” ...

Rosenbaum cut through layers of tax law and marital property nuances in the 24-page opinion, neatly simplifying a complex dispute.

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July 19, 2019 in IRS News, New Cases, Tax, Tax News | Permalink | Comments (0)

Thursday, July 18, 2019

The Blog Must Go On For This Law Dean

Law.com, The Blog Must Go On for This Law Dean:

Caron Headshot Cropped (2019)Pepperdine University Law Dean Paul Caron reflects on his two years of running a law school while also publishing his widely read TaxProf Blog, which chronicles legal education's biggest stories.

Paul Caron—legal education’s so-called Blog Emperor—took the reins at Pepperdine University School of Law in 2017, and his two years as dean have been a remarkable ride.

Things got off to a rough start in the spring of 2018 when the school was removed from the U.S. News & World Report rankings after Pepperdine discovered a mistake in the data it submitted that artificially increased its ranking and reported it to the publication. (Pepperdine returned to the ranking this year, moving up from its previous No. 72 to No. 51).

The challenges didn’t end there. In November, a Pepperdine law student was present at a nearby music venue when an armed man opened fire, killing 12. The law student was unharmed but the massacre, in which a Pepperdine undergraduate died, shook the Malibu, California, campus. A day later, the so-called Woolsey Fire tore through the area and came close to leveling the campus. The law school was spared, but closed for more than two weeks in the aftermath.

Through it all, Caron maintained his role as the town crier of legal education with his TaxProf Blog, which aggregates news about tax law and law schools. The 15-year-old blog is a must-read for legal educators and has become an important tool to raise Pepperdine’s profile and stature in the academy. Caron posts stories about events and initiatives at Pepperdine, not to mention plenty of photos of its seaside campus. Law.com caught up with Caron this week to discuss juggling the blog with his dean duties and why he hasn’t given TaxProf Blog up. His answers have been edited for length and clarity.

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July 18, 2019 in About This Blog, Legal Ed News, Legal Ed Rankings, Legal Education, Pepperdine Legal Ed, Pepperdine Tax, Tax, Tax News | Permalink | Comments (6)

Wednesday, July 17, 2019

Fifty Years, Little Progress For Black Accountants

Bloomberg Tax, Fifty Years, Little Progress for Black Accountants:

NABAWhen Darrell Groves started his first job after college, there were just a handful of other black accountants at KPMG’s office in Houston.

One was a partner in the practice who served as a mentor to Groves. She, too, had been involved in an extended internship program that Groves participated in through high school and college, introducing him to the world of a Big Four accounting firm.

Those experiences served as the foundation of a career that quickly led to a corporate job and later the launch of Grove’s own tax and accounting firm, which today features a staff of 11 who reflect all of America’s major racial groups: white, Hispanic, Asian, and black. That diversity gives clients the chance to seek an accountant who looks like them or prefer to communicate with his Spanish-speaking colleagues.

But the accounting profession as a whole isn’t nearly as diverse as Grove’s Houston practice. Roughly 9% of all 1.9 million accountants and auditors in the U.S. are black, according to the Bureau of Labor Statistics. In comparison, roughly 13% of all U.S. residents are black, according to census figures.

Bloomberg

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July 17, 2019 in Tax, Tax News | Permalink | Comments (2)

Faulhaber: Other Nations Will Follow France With Their Own Digital Tax

New York Times op-ed:  Beware. Other Nations Will Follow France With Their Own Digital Tax., by Lilian V. Faulhaber (Georgetown):

The international tax system is behind the times. But we need coordinated reform.

Last Thursday, the French Senate passed a digital services tax, which would impose an entirely new tax on large multinationals that provide digital services to consumers or users in France.

Digital services include everything from providing a platform for selling goods and services online to targeting advertising based on user data, and the tax applies to gross revenue from such services. French politicians and media outlets have referred to this as a “GAFA tax,” meaning that it is designed to apply primarily to companies such as Google, Apple, Facebook and Amazon — in other words, multinational tech companies based in the United States.

The digital services tax awaits the signature of President Emmanuel Macron, who has expressed support for the measure, and it could go into effect within the next few weeks. But it has already caused significant controversy, with the United States trade representative opening an investigation into whether the tax discriminates against American companies, which in turn could lead to trade sanctions against France.

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July 17, 2019 in Tax, Tax News | Permalink | Comments (0)

Death Of Former IRS Commissioner Mortimer Caplin At Age 103

Bloomberg Law, Mortimer Caplin Leaves Legacy at IRS, Top D.C. Law Firm:

CaplinMortimer Caplin, who helped shape the IRS and a major Washington, D.C. law firm, died July 15 at the age of 103.

Caplin was IRS commissioner under former President John F. Kennedy and later co-founded Caplin & Drysdale. As IRS chief, he worked to make the agency kinder and friendlier, according to an obituary from his alma mater, the University of Virginia.

Scott Michel, a member at Caplin & Drysdale who has been at the firm for nearly four decades, said that Caplin played a key role in the firm’s culture.

“Those of us who are old-timers around here frequently comment that the tone and culture and the level of excellence that we aspire to, you can trace right back to the tone and culture and level of excellence that Mort Caplin conveyed,” Michel said.

IRS Commissioner Charles Rettig said in a statement that Caplin had a powerful personal story and career of public service, highlighting his time at the IRS and as a beachmaster at Omaha Beach during the Normandy Invasion in World War II.

“Indeed, throughout Mort’s incredible life, his service and dedication personally embodied what it takes to preserve America and its way of life. He will be missed,” Rettig said.

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July 17, 2019 in IRS News, Obituaries, Tax, Tax News | Permalink | Comments (0)

Tuesday, July 16, 2019

NY Times: Immigration Tests Sweden's High Tax/Generous Social Safety Net Model

New York Times, The Nordic Model May Be the Best Cushion Against Capitalism. Can It Survive Immigration?:

Swedes have long been willing to pay high taxes for a generous social safety net. But that willingness is being tested by an influx of refugees.

In a global economy increasingly besieged by rage over inequality and the pitfalls of winner-take-all capitalism, Sweden has long stood out as a kinder, gentler sort of country, a potential template for other nations eager to avoid destructive populism.

The so-called Nordic model that prevails in Sweden, Denmark, Finland, Norway and Iceland has been engineered to protect people from the commonplace economic afflictions assailing many developed countries, and especially the United States. There, the loss of a job can swiftly imperil health care, housing, sustenance and mental well-being. Under the Nordic model, governments typically furnish health care, education and pensions to everyone.

The state delivers subsidized housing and child care. When people lose jobs, they gain unemployment benefits and highly effective job training programs. When children are born, parents avail themselves of paid leave that seems unimaginable in most societies — 480 days in Sweden.

“If you’re born in Sweden, you’ve basically won at life,” says Adam S. Posen, president of the Peterson Institute for International Economics in Washington. ...

But the endurance of the Nordic model has long depended on two crucial elements — the public’s willingness to pay some of the highest taxes on earth, and the understanding that everyone is supposed to work. The state ensures that working-age people are prepared with the skills for high-wage jobs, in industries like technology and advanced manufacturing.

Sweden’s sharp influx of immigrants — the largest of any European nation, as a share of the overall population — directly tests this proposition.

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July 16, 2019 in Tax, Tax News | Permalink | Comments (2)

Monday, July 15, 2019

The Taxes Of San Francisco: Bay Area In Vanguard Of Tax Increase Movement

Bloomberg Tax, The More, the Better: San Francisco Leads New Kind of Tax Revolt:

StreetsSan Francisco is emerging as one of the most receptive places in the country for new taxes.

In recent weeks: 

  • San Francisco leaders supported the proposed overhaul of the city’s gross receipts tax structure, which would be the fourth tax-raising proposal on the city’s November ballot.
  • A San Francisco Superior Court judge upheld an initiative raising commercial lease taxes to fund early childhood education and upheld a Salesforce.com-backed initiative imposing gross receipts taxes on companies earning more than $50 million to support homeless services.
  • A pair of recent court rulings upheld locally passed tax initiatives—including one backing the city’s authority to seek taxes from drivers who use paid parking lots at state universities—which could embolden tax enthusiasts in San Francisco even more.

“I think SF is going to be the poster child, one way or another, for aggressively looking for money from business,” Joseph Bankman, Stanford University professor of law and business, said. ...

San Francisco is emerging as one of the most receptive places in the country for new taxes. In recent weeks: 

  • San Francisco leaders supported the proposed overhaul of the city’s gross receipts tax structure, which would be the fourth tax-raising proposal on the city’s November ballot.
  • A San Francisco Superior Court judge upheld an initiative raising commercial lease taxes to fund early childhood education and upheld a Salesforce.com-backed initiative imposing gross receipts taxes on companies earning more than $50 million to support homeless services.
  • A pair of recent court rulings upheld locally passed tax initiatives—including one backing the city’s authority to seek taxes from drivers who use paid parking lots at state universities—which could embolden tax enthusiasts in San Francisco even more.

“I think SF is going to be the poster child, one way or another, for aggressively looking for money from business,” Joseph Bankman, Stanford University professor of law and business, said. ...

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July 15, 2019 in Tax, Tax News | Permalink | Comments (3)

IRS Releases Draft 2019 Tax Forms

Sunday, July 14, 2019

WSJ: Biden Made 'Aggressive' Use Of Edwards-Gingrich Sub S Loophole To Skirt $500k In Taxes

Biden Tax Return

Wall Street Journal, Joe Biden Used Tax-Code Loophole Obama Tried to Plug:

Democratic presidential candidate Joe Biden used a tax loophole that the Obama administration tried and failed to close, substantially lowering his tax bill.

Mr. Biden and his wife, Dr. Jill Biden, routed their book and speech income through S corporations, according to tax returns the couple released this week. They paid income taxes on those profits, but the strategy let the couple avoid the 3.8% self-employment tax they would have paid had they been compensated directly instead of through the S corporations.

The tax savings were as much as $500,000, compared to what the Bidens would have owed if paid directly or if the Obama proposal had become law.

“There’s no reason for these to be in an S corp—none, other than to save on self-employment tax,” said Tony Nitti, an accountant at RubinBrown LLP who reviewed the returns.

The technique is known in tax circles as the Gingrich-Edwards loophole—for former presidential candidates Newt Gingrich, a Republican, and John Edwards, a Democrat—whose tax strategies were scrutinized and drew calls for policy changes years ago. Other prominent politicians, including former President Barack Obama and fellow Democrat Hillary Clinton, as well as current contenders for the 2020 Democratic nomination Sens. Elizabeth Warren and Bernie Sanders, received their book or speech income differently and paid self-employment taxes. ...

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July 14, 2019 in Tax, Tax News | Permalink | Comments (2)

Saturday, July 13, 2019

Death Of Jeff Sherman (Chicago-Kent)

ShermanIn Memoriam: Professor Jeffrey G. Sherman:

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

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

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

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July 13, 2019 in Legal Education, News, Obituaries, Tax, Tax News | Permalink | Comments (1)

Friday, July 12, 2019

Tax Policy In The Trump Administration

Trump's Taxes And Tax Returns

National Taxpayer Advocate Publishes 'Subway Map' Of Taxpayer’s Journey Through The Tax System

Subway

IR-2019-123 (July 10, 2019), National Taxpayer Advocate Nina Olson Releases Comprehensive Report Intended to Improve EITC Administration; Publishes "Subway Map" of Taxpayer’s Journey Through the Tax System:

National Taxpayer Advocate Nina E. Olson today released a special report on the Earned Income Tax Credit (EITC), which makes recommendations designed to increase the participation rate of eligible taxpayers and reduce overclaims by ineligible taxpayers. Also today, the Taxpayer Advocate Service (TAS) published a subway map that depicts a taxpayer’s “journey” through the tax system to help taxpayers and policymakers better understand the tax administration process.

Special report on Earned Income Tax Credit

The EITC report, Earned Income Tax Credit: Making the EITC Work for Taxpayers and the Government, presents a detailed examination of the strengths and weaknesses of the EITC as currently structured and administered, and makes legislative and administrative recommendations to improve it. The report runs more than 100 pages – roughly half text and half appendices consisting of EITC data tables (page 49) (PDF) and a comprehensive literature review (page 82) (PDF).

“But this report is not just a research document,” Olson wrote in her preface. “It is a call to action. As we show throughout this report, the way the EITC is structured and the way the IRS is administering it often harms the very taxpayers it is intended to serve. We have made specific, common sense recommendations to mitigate that harm and reform the administration of the EITC. All our recommendations are actionable and supported by data and research.”

The report makes both general, conceptual recommendations and specific recommendations. Among the general recommendations:

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July 12, 2019 in IRS News, Tax, Tax News | Permalink | Comments (3)

Thursday, July 11, 2019

The Trump Economy Is Leaving Many Americans Behind

New York Times op-ed:  The Trump Economy Is Leaving Many Americans Behind, by Steven Rattner:

2020 presidential candidates should highlight the economic shortcomings that still exist to counter the president’s sunny narrative.

A major new poll released Sunday showed that Donald Trump’s approval rating is on the rise, particularly for his handling of the economy. How can Democrats make their case for why the economy may not be as good as it can appear? Here are three examples of groups of Americans who are being left behind.

It may be common knowledge that African-Americans are not as well-off financially as white Americans, but what is not widely understood is the extent to which black Americans have fallen further behind over the past nearly two decades. In 2002, African-Americans, on average, earned just over 80 percent of what white Americans earned. By the first quarter of this year, after various ups and downs, that figure had fallen to about 76 percent. ...

Rattner 1

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July 11, 2019 in Tax, Tax News | Permalink | Comments (6)

Clausing: Taxing The Rich

Kimberly Clausing (Reed College), Taxing the Rich:

The Issue: Many Americans have not felt the benefits of strong GDP growth in recent decades, as thirty-five years of rising income inequality have concentrated the income growth at the top of the distribution. While the federal income tax system is progressive, it has failed to counter these trends, and some of our tax policy changes have in fact exacerbated inequality. At present, many feel that the U.S. government needs more revenue for urgent fiscal priorities such as infrastructure, yet the federal government is operating with high budget deficits and debt. Thus, as policy-makers search for new revenues, some are eager to increase tax payments by those at the top of the income distribution.

The Facts: Economic inequality has increased dramatically in the United States, and because of this, gains in real GDP per-capita are often not felt by many in our society. (See chart.)

Clausing

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July 11, 2019 in Tax, Tax News | Permalink | Comments (2)

NY Times: Can States Just Say No To Corporate Giveaways?

New York Times editorial, Can States Just Say No to Corporate Giveaways?:

No place better illustrates the absurdities of the proliferating use of tax incentives for job creation than the Kansas City metro area, which straddles the Missouri-Kansas state line.

Over the past decade, Missouri and Kansas have offered more than $330 million in tax breaks to lure companies back and forth across State Line Road. More than 100 companies and more than 12,000 workers have moved to new offices, some headed east, some headed west. Missouri poached Swiss Re and Applebee’s; Kansas got JPMorgan Chase and AMC Entertainment.

The net result? No increase in economic activity; no improvement in the lives of workers. Just a few more jobs in Kansas, a few less in Missouri — and a big loss of tax dollars.

Corporate tax incentives are a dubious business. The giveaways frequently serve no higher purpose than rewarding businesses for moving where they already plan to move or creating jobs they already plan to create. And even when incentives prove motivational, there is often reason to question whether governments are getting value for the money.

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July 11, 2019 in Tax, Tax News | Permalink | Comments (1)

Friday, July 5, 2019

Tax Policy In The Trump Administration