Walker Presents Tax Complexity and Technology Virtually Today At Boston University

David Walker (Boston University) presents Tax Complexity and Technology virtually at Boston University today as part of its Faculty Workshop Series:

The federal income tax code has become increasingly complex over time with the implication that many taxpayers no longer understand the connection between their life decisions and their taxes. Some commentators have suggested that increasing computational complexity may be attributable in part to the proliferation of tax preparation software that renders such complexity manageable at filing time, but otherwise does nothing to mitigate the “black box” nature of the tax system. While such complexity and opacity undercut explicit incentives embedded in the Code, make planning more difficult, and undermine political accountability for taxes, they may also reduce the inefficient distortion or deadweight loss of the income tax, particularly with respect to higher-income taxpayers.

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Kaplan: Estate Planning For Retirement Benefits After The SECURE Act

Richard L. Kaplan (Illinois), Estate Planning for Retirement Benefits after the SECURE Act, 46 ACTEC L.J. 79 (2020):

This brief essay examines one of the most significant intersections of Elder Law and Trusts & Estates – namely, distributions from defined contribution retirement plans after the participant dies. Particular attention is paid to recently enacted statutory changes, including the end of so-called “stretch IRAs,” which allowed non-spouse beneficiaries to spread withdrawals from inherited retirement accounts over their lifetimes. This essay also addresses strategic considerations in designating beneficiaries for such accounts.

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Gutman: Taxing Gains At Death

Harry L. Gutman (Ivins, Phillips & Barker, Washington, D.C.), Taxing Gains at Death, 170 Tax Notes Fed. 215 (Jan. 11, 2021):

Joe Biden has proposed addressing income inequality in part by eliminating the tax-free step-up in basis for property passing at death. Although details are lacking, the proposal would address a glaring omission from a comprehensive income tax base — an omission that exacerbates vertical inequity and produces horizontal inequity, inefficient resource allocation, and significant revenue loss.

In this article, I argue that tax-free step-up should be repealed and replaced by a regime in which death and lifetime transfers are income tax realization events. That would mean that when an individual dies owning property that has appreciated in value, tax would be payable on that gain rather than forgiven as it is under current law. Conforming rules would treat lifetime transfers similarly.

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Taxing Trades: Proposals To Keep Moneyball Out Of Tax Law

Cody Wilson (J.D. 2020, SMU), Comment, Taxing Trades: Proposals to Keep Moneyball Out of Tax Law, 72 SMU L. Rev. 953 (2019):

Ever since professional sports first captivated the hearts and minds of American fans, team scouts have scoured the land for athletic talent. Upon discovery, scouts must gauge the discovered player’s worth to their team, which is done through both observation and statistical analysis commonly known as “Moneyball.” However, as economists note, such valuation methods often fall short. Nonetheless, following the Tax Cuts and Jobs Act of 2017 (TCJA), current tax laws require that Internal Revenue Service (IRS) agents engage in the same player valuation conundrum to assess the tax consequences of trades between teams.

Before the TCJA, § 1031 of the Internal Revenue Code allowed trades of player contracts and future draft picks to go untaxed. Section 1031 allowed this because such trades constituted a like-kind exchange, which prevented any gain or loss from being recognized for tax purposes. Now, the TCJA has limited the non-recognition treatment afforded by § 1031 to real property, forcing IRS agents to ascertain the fair market value of player contracts and future draft picks to assess the tax consequences of trades. Adding to the conundrum facing the IRS, the Treasury Department has created a safe harbor permitting teams to treat player contracts and future draft picks as having a zero value for tax purposes; however, the Treasury Department has not released guidance addressing how valuations are to occur when teams avoid the safe harbor.

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Layser Presents Redevelopment Tax Incentives And Gentrification Online Today At Toronto

Michelle Layser (Illinois) presents Redevelopment Tax Incentives and Gentrification: A Spatial Analysis online at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series:

Place-based tax incentives, such as the New Markets Tax Credit (NMTC) and Opportunity Zones incentives, are often used to promote investment in low-income census tracts. Critics fear that when gentrifying neighborhoods are eligible for incentives, they will attract investment away from the neighborhoods that need it most. However, few studies have provided empirical analysis to assess whether these concerns have merit. Through a novel geospatial analysis of the location patterns of tax-subsidized projects, this Article provides new evidence of inequitable distributions of tax credits, which can inhibit their ability to benefit struggling communities. These findings have profound implications for the federal and state NMTC programs, as well as the new Opportunity Zones law. This Article analyzes 15 years of NMTC data to explore location patterns of tax subsidized investments in 20 U.S. cities. It employs spatial analysis methods to describe the location patterns of investment and their relationship to two variables known to correlate with gentrification: high vacancy rates and increasing rental rates.

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Luke Reviews Field's M&A Termination Rights Triggered By Changes In Law

Charlene Luke (Florida), The Upside of Investigating Taxpayers' Approaches to the Downside Risks of Tax Law Change (reviewing Heather M. Field (UC-Hastings), Tax MACs: A Study of M&A Termination Rights Triggered by Material Adverse Changes in Law, 73 Tax Law. 823 (2020)):

Heather M. Field’s Tax MACs: A Study of M&A Termination Rights Triggered by Material Adverse Changes in Law presents information and insights about tax-specific material adverse change provisions in publicly filed mergers and acquisitions (M&A) agreements from May 2014–May 2019. Field identified and primarily focused on 13 agreements with “Tax MAC Out” provisions, meaning that these agreements provided an exit right that could be exercised unilaterally because of adverse tax law changes. Field also located 6 agreements that contained express Tax MAC provisions but that did not provide a unilateral ability to exit; most in this group were in the form of requiring the parties to work to address the tax change through restructuring, with termination expressly not following from an inability to complete such restructuring.

The article highlights the bespoke nature of Tax MAC provisions; while Field found that some boilerplate language recurred, there were also substantial differences among the agreements, and the article suggests explanations for the variability, tied to specific instances of difference. As Field notes, the heterogeneity suggests ample “opportunities for nuanced bargaining and value-added lawyering.” ...

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A Critical Assessment Of The Originalist Case Against Administrative Regulatory Power: New Evidence From The Federal Tax On Private Real Estate In The 1790s

Nicholas R. Parrillo (Yale), A Critical Assessment of the Originalist Case Against Administrative Regulatory Power: New Evidence from the Federal Tax on Private Real Estate in the 1790s, 130 Yale L.J. ___ (2021):

The Supreme Court is poised to toughen the nondelegation doctrine to strike down acts of Congress that give broad discretion to administrators, signaling a potential revolution in the separation of powers. A majority of the Justices have suggested they are open to the sweeping theory that all agency rulemaking is unconstitutional insofar as it coerces private parties and is not about foreign affairs. If adopted, this theory would invalidate most of the federal regulatory state. Jurists and scholars critical of rulemaking’s constitutionality base their claims on the original meaning of the Constitution. But these critics face a serious obstacle: early Congresses enacted several broad delegations of administrative rulemaking authority. The critics’ main response has been that these early statutes don’t count, because they fall into areas in which (say the critics) the original nondelegation doctrine did not apply, or applied only weakly: non-coercive legislation (e.g., giving benefits) or foreign-affairs legislation.

This Article finds that the originalist critics of rulemaking are mistaken to say that no early congressional grant of rulemaking power was coercive and domestic. There is a major counter-example missed by the literature on nondelegation, indeed by all of legal scholarship, and not discussed more than briefly even by historians: the rulemaking power under the “direct tax” of 1798. In that legislation, Congress apportioned a federal tax quota to the people of each state, to be paid predominantly by owners of real estate in proportion to their properties’ respective values. Thousands of federal assessors assigned taxable values to literally every house and farm in every state of the Union, deciding what each was “worth in money”—a standard that the legislation stated but did not define. Because assessors in different parts of a state could differ greatly in how they did valuation, Congress established within each state a federal board of tax commissioners with power to divide the state into districts and to raise or lower the assessors’ valuations of all real estate in any district by any proportion “as shall appear to be just and equitable”—a phrase undefined in the statute and not a term of art. The federal boards’ power to revise valuations en masse in each intra-state tax district is identical to the fact pattern in the leading Supreme Court precedent defining rulemaking. Thus, each federal board in 1798 controlled, by rule, the distribution of the federal tax burden within the state it covered.

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Taxing Cannabis On The Reservation

Mark J. Cowan (Boise State University), Taxing Cannabis on the Reservation, 57 Am. Bus. L.J. ___ (2020):

American Indian tribes that enter the cannabis industry confront a multi-sovereign tax system that lacks certainty and horizontal equity. The complex interaction of state legalization and taxation of cannabis, federal tax law, the status of tribes as both governments and business enterprises, and the legal and tax landscape in Indian country can give tribes tax advantages and disadvantages compared to off-reservation cannabis dispensaries. This article analyzes these tax issues, examines them in the context of prior challenges posed by Indian gaming, and suggests reforms that address the tax inequities that can result from cannabis sales on Indian reservations.

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Kirsch: Conditioning Citizenship Benefits On Satisfying Citizenship Obligations

Michael S. Kirsch (Notre Dame), Conditioning Citizenship Benefits on Satisfying Citizenship Obligations, 2019 U. Ill. L. Rev. 1701:

Citizenship status is often discussed in terms of both its benefits and its obligations. A recently enacted Federal statute (the FAST Act), which denies U.S. passports to certain citizens who owe significant unpaid taxes, provides an opportunity to examine the linkage between citizenship benefits and obligations. In particular, it raises the question under what circumstances, if any, should the benefits of citizenship be conditioned on compliance with the obligations of citizenship.

This Article identifies a typology for situating unpaid taxes within other circumstances under which passports may be denied to U.S. citizens. It then focuses on the instrumental, constitutional, and expressive impacts of the FAST Act, illustrating that the benefit-obligation linkage can have unintended consequences, not only from an instrumental perspective, but perhaps more importantly from its expressive impact on social norms. The Article then applies these lessons to a broader range of situations where Federal benefits are conditioned on compliance with citizenship obligations, most notably the denial of student loan benefits for those young men who do not register with the Selective Service.

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Lesson From The Tax Court: The CDP Silver Linings Playbook

Tax practitioners tend not to know much about bankruptcy.  Today’s lesson is for them.  In Wiley Ramey v. Commissioner, 156 T.C. No. 1 (Jan. 14, 2021), Judge Toro held that a CDP notice properly sent to a taxpayer’s last known address triggers the time period for the taxpayer to request a CDP hearing, even if the CDP notice is actually delivered to a different person who shares that address.  That is the tax lesson most folks will see in this case, and it’s a good one.

I see an additional lesson, a bankruptcy lesson.  While the taxpayer’s failure to timely request a CDP hearing meant no he received no Tax Court review of the administrative hearing, the news is not all bad.  The lesson for today is about silver linings:  the taxpayer’s equivalent hearing still got the delay benefits of CDP, and that delay did not count against Mr. Ramey should he file bankruptcy and seek a discharge of the tax liabilities at issue.  Practitioners would not be crazy to put this lesson in a Playbook, a CDP Silver Linings Playbook.  Yeah, it was a good movie, too.  More below the fold.

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The Top Five New Tax Papers

There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #5. The #1 paper is #474 among 15,661 tax papers in all-time downloads:

1. [898 Downloads]  A Simple Regulatory Fix for Citizenship Taxation, by John Richardson, Laura Snyder & Karen Alpert (Queensland)
2. [498 Downloads]  Tax Treaty Negotiations: Myth and Reality, by Yariv Brauner (Florida)
3. [296 Downloads]  Is It Time to Eliminate Federal Corporate Income Taxes?, by Edward Lane (Albany) & Randall Wray (UMKC)
4. [233 Downloads]  What May We Expect of a Theory of International Tax Justice?, by Dirk Broekhuijsen (Leiden) & Henk Vording (Leiden)
5. [192 Downloads]  5 Lessons on Profit Shifting From U.S. Country-by-Country Data, by Kimberly Clausing (UCLA)

This Week's Ten Most Popular TaxProf Blog Posts

1. 157 Law School Deans, Joint Statement On The 2020 Election And Events At The Capitol
2. State Bar of California, Bar Exam Pass Rate Is Highest In 12 Years, Due To Lower Cut Score; Supreme Court May Grant Licenses To 2,000 Applicants Who Failed Exams Since July 2015 And Scored 1390 Or Higher
3. Elise Westhoff (Wall Street Journal op-ed), The Left Wants A Philanthropy Of The Few
4. Los Angeles Times, Law Prof John Eastman Retires From Chapman 'Effective Immediately' Amidst Uproar Over Speaking At Trump Rally Last Wednesday
5. Bryan Camp (Texas Tech), Lesson From The Tax Court: Too Much Control Over IRA Distribution Makes It Income
6. The Princeton Review, 2021 Princeton Review Law School Rankings: Academic Experience
7. The Princeton Review, 2021 Princeton Review Law School Rankings: Admissions Selectivity
8. The Princeton Review, 2021 Princeton Review Law School Rankings: Career Rating
9. The Princeton Review, 2021 Princeton Review Law School Rankings: Professors (Teaching)
10. The Princeton Review, 2021 Princeton Review Law School Rankings: Professors (Accessibility)

Cui: China’s Tax Policy Response To The Global Financial Crisis

Wei Cui (British Columbia), China’s Tax Policy Response to the Global Financial Crisis:

VAT reform constituted the most important tax policy action China took during the global financial crisis in 2008-9. If China had had a more typical tax structure, this specific policy instrument (as well as certain others) would not have been available. Conversely, because of the idiosyncrasies of China’s current tax structure, some of the policy measures commonly deployed in other countries also cannot be used. In comparing China and Europe in the tax policies adopted since 2008, therefore, major differences in prior tax structures must be taken into account. There are also two other potential determinants of China’s tax policy.

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Weekly SSRN Tax Article Review And Roundup: Kim Reviews Holderness' Tax Relief for Commuters

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Hayes Holderness (Richmond), Changing Lanes: Tax Relief for Commuters, 40 Va. Tax Rev. ___ (2021).

Commuting has mixed motives: one must travel to get to work (business motive), but the extent and burden of the travel is the result of the personal choice about where to live (personal motive). However, there is no middle ground under the tax law; an expense is classified as either personal or business. Under current law, it is well established that commuting expenses are personal, and thus, nondeductible expenses under the tax law (e.g., Comm'r v. Flowers, 326 U.S. 465 (1946)). However, in the wake of COVID-19, working from home has become the new normal. Many people who used to commute to work no longer have the same amount of expenditure for commuting, such as gas and metro passes. What are the normative implications of such changed behavior? Hayes Holderness offers his views in his recent essay, Changing Lanes: Tax Relief for Commuters (forthcoming in Va. Tax Rev.).

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The Tax Lawyer Publishes New Issue

The Tax Lawyer has published Vol. 74, No. 1 (Fall 2020):

• W. Edward Afield (Georgia State), Moving Tax Disputes Online Without Leaving Taxpayer Rights Behind, 74 Tax Law. 1 (2020)
• Vorris J. Blankenship (Retired Attorney and CPA), Distributions to Beneficiaries of Tax-Favored Retirement Plans, Before and After the SECURE Act, 74 Tax Law. 43 (2020)
• David Hasen (Florida), Section 338 and the Step Transaction Doctrine, 74 Tax Law. 105 (2020)

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Global Implementation Of Soda Taxes: Is There A Better Solution For Combatting Obesity?

Lauren Cedeno (J.D. 2020, Brooklyn), Global Implementation of Soda Taxes: Is There a Better Solution for Combatting Obesity?, 45 Brook. J. Int'l L. 329 (2019):

As incidences of overweight and obese populations continue to increase around the world, countries are looking for ways to decrease the prevalence of this epidemic. Soda and SSB taxes have increased in prevalence as countries seek to address the health problems associated with consumption of soda and other sugary beverages. This Note explores the implementation of these taxes in Mexico, Europe, and the United States. In analyzing these taxes, this Note seeks to gain a greater understanding of whether these taxes have impacted overweight and obesity rates in the countries and municipalities that have enacted them. This Note argues that soda and SSB taxes are only the first step in addressing this growing health epidemic and that more robust health policies are necessary to achieve a healthier global population.

Conclusion
The international community must begin to acknowledge the dangerous role that SSBs and other sugar-filled products play in the onset of NCDs caused by obesity. NCDs linked to poor consumption habits are currently the leading cause of death in the world today. Taxes on SSBs have been a critical step toward addressing the role sugary products play in the onset of NCDs and obesity. Without new policies to address the threat that obesity poses to population health, however, it is likely that the risk of obesity-related illness will only continue to rise. By imposing stricter regulations on the accessibility of SSBs, the sugar content in those products, and the manners in which they can be advertised, as well as developing more holistic food and beverage health initiatives, countries may very well see a substantial drop in obesity rates. Accordingly, it is important that international health organizations, such as the WHO, continue to raise awareness about the adverse health consequences that flow from diets high in food and drinks lacking proper nutrition. They can do this by encouraging countries to enact and reform legislation to better tackle the obesity epidemic.

Lederman: Valuation As A Challenge For Tax Administration

Leandra Lederman (Indiana), Valuation as a Challenge for Tax Administration, 96 Notre Dame L. Rev. ___ (2021):

Valuation issues have long posed challenges for the U.S. federal tax system. This is not just because of questions about what technique will most accurately value particular types of property. A key problem for tax administration is that taxpayers have an incentive to claim erroneous, self-serving valuations. This Essay analyzes tax valuation through this tax compliance lens. In so doing, it highlights the importance that third parties to the taxpayer-government relationship act at arm’s-length from the taxpayer. It also explains why penalties are insufficient to deter erroneous self-reported valuations. The Essay also draws on the tax compliance perspective to make some preliminary observations about valuation methodologies.

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Hemel & Polsky: Taxing Buybacks

Daniel J. Hemel (Chicago) & Gregg D. Polsky (Georgia), Taxing Buybacks, 38 Yale J. on Reg. 246 (2021):

A recent rise in the volume of corporate share repurchases has prompted calls for changes to the rules governing stock buybacks. These calls for reform are animated by concerns that buybacks enrich corporate executives at the expense of productive investment. This emerging antibuyback movement includes prominent politicians as well as academics and Republicans as well as Democrats. The primary focus of buyback critics has been on securities-law changes to deter repurchases, with only passing mention of potential tax-law solutions.

This Article critically examines the policy arguments against buybacks and arrives at a mixed verdict. On the one hand, claims that buybacks reduce corporate investment and inappropriately reward executives turn out to be poorly supported. On the other hand, the Article identifies legitimate tax-related concerns about the rising buyback tide. Buybacks exacerbate two of the U.S. tax system’s most severe flaws. The first is the “Mark Zuckerberg problem”: the effective nontaxation of firm founders on what is essentially labor income. The second is what we call the “Panama Papers problem”: the use of U.S. capital markets by investors in offshore tax havens to generate tax-free returns.

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Domicile In Multistate Personal Income Tax Residency Matters

Scott R. Thomas (Bentley University), Domicile in Multistate Personal Income Tax Residency Matters: Enter the Swamp at Your Own Peril, 39 Pace L. Rev. 875 (2019):

This Article argues that states should remove the domicile concept from the definition of a resident and rely solely on an objective test or tests. Part I of this Article defines the terms resident and domicile using examples from the laws of Massachusetts, Minnesota, and New York. Part II discusses the problems created for individuals and state taxing authorities in the application of a subjective standard, the burden and standard of proof applied, and the domicile or residency bias of states. Part III describes how Congress defines a resident of the United States and the rationale behind Congress’s movement away from its previous subjective standard.

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Mason Presents The Legality Of Digital Taxes In Europe Online Today At Toronto

Ruth Mason (Virginia) presents The Legality of Digital Taxes in Europe (with Leopoldo Parada (Leeds)) online at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series:

This essay argues that EU taxpayers may challenge digital services taxes as violations of EU law. Specifically, because digital services taxes exempt all but the very largest companies, which are disproportionately foreign, such taxes result in nationality discrimination as applied. As part of our analysis of the legality of digital taxes, we consider what role discriminatory intent should play in resolving nationality discrimination cases. We also evaluate potential justifications for digital taxes, and we argue that two recent decisions by the Court of Justice of the European Union suggest that the Court will uphold such taxes against challenges by taxpayers, but we explain how those cases could be distinguished.

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Batchelder: Optimal Tax Theory As A Theory Of Distributive Justice

Lily L. Batchelder (NYU), Optimal Tax Theory as a Theory of Distributive Justice:

The literature on taxation and transfers primarily relies on two theories of distributive justice: resource egalitarianism and welfarism, as elaborated through optimal tax theory. In recent years, optimal tax theory has garnered even greater prominence. But non-welfarists argue it fails to address a number of serious philosophical objections.

This article considers the primary critiques of optimal tax theory, especially by resource egalitarians. It argues the gap between these two theories is narrower than most appreciate. Indeed, once one focuses on egalitarian optimal tax theory and reads that literature broadly, the ideal policy design principles implied by each theory largely mimic the other.

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Graetz: A Major Simplification Of The OECD’s Pillar 1 Proposal

Michael J. Graetz (Columbia), A Major Simplification of the OECD’s Pillar 1 Proposal, 170 Tax Notes Fed. 213 (Jan. 11, 2021):

In this report, Graetz suggests major modifications to the OECD’s pillar 1 blueprint proposal to create a new taxing right for multinational digital income and some product sales that would greatly simplify the proposal. The modifications rely on readily available existing financial information and would achieve certainty in the application of pillar 1, while adhering to its fundamental structure and policies.

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The 1920s, The Digital Economy, And The Great Covid Lockdown

Craig Elliffe (Auckland), Assessing the Flaws in the 1920s Compromise in the Times of the Burgeoning Digital Economy and the Great Lockdown:

The COVID-19 pandemic has been described by the International Monetary Fund as the worst recession since the Great Depression. The combination of tax shortfalls, increased government spending, and the irrefutable growth in the digital economy has created a situation which means that the world arrives at the crossroads of international tax reform with a great sense of urgency. If there is political consensus, reform will be in the format proposed, or similar to, the OECD/Inclusive Framework’s proposal (described as the 2020s compromise). In the absence of political consensus, then the world will travel down the other branch of the crossroads and we will see the introduction of a plethora of interim and unilateral domestic taxes.

The existing international tax rules are widely regarded as being “not fit for purpose”. After a brief introduction of the history of the international tax framework (referred to by some as the 1920s compromise), this paper traces the development of the current OECD/Inclusive Framework proposals as international tax policymakers grapple with the vexing problem of how to tax multinationals who do business across borders, particularly those that operate using a highly digitalised business model.

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This Economist Has A Radical Plan To Solve Wealth Inequality

Wired, This Economist Has a Radical Plan to Solve Wealth Inequality:

Piketty’s 753-page book Capital in the Twenty-First Century, published in 2013, sold 2.5 million copies worldwide and helped put inequality on the global agenda. But his latest, the even thicker Capital and Ideology, may prove still more influential. The book is nothing less than a global history of inequality and the stories that societies tell to justify it, from pre-modern India to Donald Trump’s US. It arrives just as anger about inequality (some of it generated by Piketty’s work) approaches boiling point, and was channelled by a contender for the White House, Bernie Sanders.

Capital and Ideology builds on Piketty’s long-standing argument that inequality has soared across the world since 1980. It proposes strong remedies. Piketty wants to slap wealth taxes of 90 per cent on any assets over $1 billion, and waxes nostalgic about the postwar decades when British and American top marginal income-tax rates were over 80 per cent. ...

In an era when technology platforms are arguably concentrating wealth in the hands of a diminishing number of people in the Valley, Piketty’s advocacy of much higher taxes has attracted the attention of both progressives and radicals around the world. ...

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Hatfield: Professionally Responsible Artificial Intelligence

Michael Hatfield (University of Washington), Professionally Responsible Artificial Intelligence, 51 Ariz. St. L.J. 1057 (2019):

As artificial intelligence (AI) developers produce more applications for professional use, how will we determine when the use is professionally responsible? One way to answer the question is to determine whether the AI augments the professional’s intelligence or whether it is used as a substitute for it. To augment the professional’s intelligence would be to make it greater, that is, to increase and improve the professional’s expertise. But a professional who substitutes artificial intelligence for his or her own puts both the professional role and the client at risk. The problem is developing guidance that encourages professionals to use AI when it can reliably improve expertise but discourages substitution that undermines expertise. 

This Article proposes a solution, using tax professionals as a case study. There are several reasons tax professionals provide a good case study, including that tax practice has a long history of computerization and that AI is already being developed for tax professionals. Tax professionals, including not only lawyers but certified public accountants, are directly regulated by the Internal Revenue Service (IRS), in addition to their regulation by professional bodies.

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What May We Expect Of A Theory Of International Tax Justice?

Dirk Broekhuijsen (Leiden) & Henk Vording (Leiden), What May We Expect of a Theory of International Tax Justice?:

In this article, we discuss what may be expected of a theory of international tax justice. After looking at the most important distributive as well as procedural theories of tax justice, we conclude that none of the existing theories can provide a coherent account of international tax justice. We therefore propose an alternative, more pragmatic approach drawing on Amartya Sen.

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Kamin: How Far To Go In Reforming Taxation Of Wealth

David Kamin (NYU), How Far to Go in Reforming Taxation of Wealth: Revenue and Tax Avoidance, 168 Tax Notes Fed. 1225 (Aug. 17, 2020):

The article describes the revenue estimates of incremental versus fundamental reform options for taxation of individual wealth, and explains how tax avoidance assumptions underlie the larger estimates for fundamental reform. 

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The Impact Of Potential Tax Reform On Stock Market Returns: 2016 Election To TCJA

Anthony M. Diercks (Board of Governors, Federal Reserve), Daniel Soques (University of North Carolina-Wilmington) & William Waller (Tulane), The 283 Days of Stock Returns after the 2016 Election:

Conventional wisdom suggests that the promise of tax legislation played an important and positive role in the 25% increase in the stock market that began on November 9, 2016 and continued through December 22, 2017 (the day TCJA was signed into law). Our comprehensive and exhaustive forensic analysis confirms its positive effect. With that said, we find that its net impact is relatively modest.

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Lesson From The Tax Court: Too Much Control Over IRA Distribution Makes It Income

Note: The Tax Court has migrated to a different operational internet platform.  As of last Friday, any opinions (if any) issued by  the Court since it closed its old platform in late November, are not accessible.  Further, older opinions are also not accessible, unless another website (such as leagle.com or casetext.com) captured a copy before the old platform closed.  That is why I am unable to provide a link to this week's case.  If any reader has public link to the opinion I would be grateful.

A fundamental concept I teach my tax students is the idea of control.  Taxpayers who engage in schemes where they ostensibly never touch a payment but in reality control its disposition often cannot escape taxation.  In Brett John Ball v. Commissioner, T.C. Memo. 2020-152 (Nov. 10, 2020) (Judge Halpern), the taxpayer caused his self-directed IRA to distribute money to a wholly owned LLC, then caused the LLC to issue short-term loans to real estate entities.  When the loans were repaid, Mr. Ball re-deposited the money into the IRA.  The taxpayer had some decent arguments on why he should not have to report the IRA distributions as income.  Judge Halpern rejected those arguments, teaching us a lesson about how much control is too much control.

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The Top Five New Tax Papers

There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #5. The #1 paper is #491 among 15,657 tax papers in all-time downloads:

1. [878 Downloads]  A Simple Regulatory Fix for Citizenship Taxation, by John Richardson, Laura Snyder & Karen Alpert (Queensland)
2. [411 Downloads]  Tax Treaty Negotiations: Myth and Reality, by Yariv Brauner (Florida)
3. [291 Downloads]  Is It Time to Eliminate Federal Corporate Income Taxes?, by Edward Lane (Albany) & Randall Wray (UMKC)
4. [237 Downloads]  Assessing the Flaws in the 1920s Compromise in the Times of the Burgeoning Digital Economy and the Great Lockdown, by Craig Elliffe (Auckland)
5. [202 Downloads]  What May We Expect of a Theory of International Tax Justice?, by Dirk Broekhuijsen (Leiden) & Henk Vording (Leiden)

AALS Hosts Virtual Panel Today On New Voices In Taxation

The AALS Tax Section hosts a Zoom panel today on New Voices in Taxation at 4:15 pm ET:

This program gives junior tax scholars an opportunity to receive useful feedback on their work from senior reviewers before submitting the work for publication.

Kathleen DeLaney Thomas (North Carolina) (moderator)

Jeremy Bearer-Friend (George Washington), Taxation and the Law-and-Political-Economy Project (with Ari Glogower (Ohio State), Ariel Jurow Kleiman (San Diego) & Clinton Wallace (South Carolina)
Commentator:  Ajay Mehrotra (American Bar Foundation & Northwestern)

Jonathan Choi (Minnesota), Legal Analysis, Policy Analysis, and the Price of Deference: An Empirical Study of Mayo and Chevron
Commentator, Leigh Osofsky (North Carolina)

Hayes Holderness (Richmond), Insidious Regulatory Taxes
Commentator:  Beth Colgan (UCLA)

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McLaughlin: Conservation Easements And Federal Tax Law

Nancy A. McLaughlin (Utah), Trying Times: Conservation Easements and Federal Tax Law (207 pages):

Since 2005, the courts have decided more than 90 cases involving challenges to deductions claimed with respect to conservation easement donations. More than 135 opinions have been issued in these cases due to appeals, motions for reconsideration, and the issuance of separate opinions addressing specific issues. This outline, which is updated annually, discusses the case law and other developments in the conservation easement donation context.

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Hayashi's Dynamic Property Taxes And Racial Gentrification

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by Andrew T. Hayashi (UVA), Dynamic Property Taxes and Racial Gentrification (2020).

Four decades after California’s Prop 13 and the Tax Revolt it instigated, we are still unraveling the downstream consequences of property tax limits. Andrew Hayashi explores yet another unanticipated, if not surprising, consequence of property tax assessment limits in the context of gentrification. Combining theoretical reasoning with empirical data from Maryland, his approach is thoughtful and nuanced, reflecting the multilayered complexity underlying the economic and social processes at play.

The crux of his reasoning is the following. Property taxes are based on a property’s assessed value, which often differs from its market value. A relatively lower assessed value means a lower “effective tax rate” (ETR), since the ETR is measured against market value. Tax limits play an important role by limiting the government’s ability to assess properties at their market value, either imposing a maximum increase percentage or requiring that increases be phased-in over time. Regardless of the form, these limits cause lower ETRs for properties that are increasing in value compared to properties with stable or declining values. The more rapid the appreciation, the more pronounced the ETR gap.

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Field: Allocating Tax Transition Risk

Heather Field (UC-Hastings), Allocating Tax Transition Risk, 73 Tax L. Rev. ___ (2020):

The enactment of sweeping tax changes in late 2017 by Republicans without any bipartisan support and the calls by Democrats to reverse those changes (and make more) when they regain political power create an unstable tax landscape that is challenging for taxpayers who are trying to make economic decisions that are affected by tax law. One strategy for grappling with this instability and uncertainty is for taxpayers to use contracts to allocate the economic benefits and burdens of a possible future tax law change among themselves. The literature says almost nothing about this contract-based strategy for managing tax transition risk. This gap is surprising because (a) the leading view on tax transition policy argues that taxpayers should account for the risk of tax law changes the same way they take other market risks into account when making decisions, and (b) private contracting is a well-accepted method for addressing market risks. To fill this gap, this Article uses four case studies—involving derivatives, credit agreements, municipal bonds, and merger agreements—to demonstrate that taxpayers are using tax transition risk-shifting contracts and to illustrate how this risk-management strategy varies. This Article then discusses three implications of this study.

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Cui: Taxpayer Self-Inspections, Audits, And Optimal Tax Administration In China

Wei Cui (British Columbia), Taxpayer Self-Inspections, Audits, and Optimal Tax Administration: Evidence from China:

I document an important tax collection practice that is previously unknown to research on tax administration: mandatory taxpayer self-inspections. The practice emerged spontaneously across China in the 1990s and persists to this day despite having no basis in law. If taxpayers report additional liabilities after self-inspections, no penalties are imposed. Unlike tax amnesties, self-inspections are (i) backed up by the threat of government inspections with a significantly higher-than-normal audit probability, and (ii) used as a basic, routine revenue-generation technique. I show that self-inspections represent roughly 50% of the activity in China’s “tax inspection” (jicha) system and assume even greater importance in the larger “revenue management” (shuiyuan guanli) system. Evidence suggests that self-inspections are much more effective at generating revenue than costlier government inspections.

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Schaffa: The Economic Efficiency Case Against Business Tax Privacy

Daniel Schaffa (Richmond), The Economic Efficiency Case Against Business Tax Privacy, 50 Seton Hall L. Rev. 27 (2019):

By statute, business tax returns are not publicly available. But with public access, investors would acquire useful information that would help them make better investing decisions; business tax compliance and planning would become more uniform, preventing tax-savvy firms from gaining an advantage over other relatively more productive firms; and businesses could learn from one another, which would spare firms the cost of redundantly developing the same tax strategies. In the long run, these efficiency gains could result in lower prices, higher wages, more innovation, more leisure, and better investment returns. In the debate over business tax privacy, these sorts of economic efficiency arguments have received surprisingly little attention. This Article argues that economic efficiency is central to the debate and may well change where we come out on business tax privacy.

Conclusion
Economic efficiency is paramount to tax policy, but on one important issue—whether businesses should be entitled to tax privacy—the efficiency criterion has received short shrift. This Article evaluates business tax privacy using the same efficiency criteria applied to other tax issues and argues that eliminating business tax privacy would be beneficial. Public access to business tax returns was a feature of the country’s first corporate tax legislation. Economic efficiency considerations commend a return to our original approach.

Brooks: The Tax Treatment Of Student Loan Discharge And Cancellation

John R. Brooks (Georgetown), The Tax Treatment of Student Loan Discharge and Cancellation:

The standard view is that, absent an express exclusion in the tax code, cancellation of student debt is taxable. Under this view, any immediate debt relief through administrative action would generate a tax bill. More troubling, the millions of borrowers in Income-Driven Repayment could face a “tax bomb” because of their promised loan cancellation, potentially hitting borrowers with bills for $100,000 or more in the same year that the government tells them their loan obligations have ended. These perverse outcomes are, however, based on a misreading of the tax law. The standard tax treatment of debt cancellation does not work with student loans, for three principal reasons.

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The 10 Most Popular Tax Articles Of 2020

1. 2791 Downloads:  Hiba Hafiz, Shu-Yi Oei, Diane Ring & Natalya Shnitser (Boston College), Regulating In A Pandemic: Evaluating Economic And Financial Policy Responses To The Coronavirus Crisis (reviewed by Michelle Layser (Illinois))
2. 1,588 Downloads:  Lily Batchelder (NYU) & David Kamin (NYU), Taxing the Rich: Issues and Options
3. 1,339 Downloads:  Ruth Mason (Virginia), The Transformation of International Tax, 114 Am. J. Int'l L. 353 (2020) (reviewed by Shu-Yi Oei (Boston College); symposium responses by Wolfgang Alschner (Ottawa), Reuven Avi-Yonah (Michigan), Wei Cui (British Columbia), Lilian Faulhaber (Georgetown), and Alan Sykes (Stanford))
4. 822 Downloads:  John Richardson, Laura Snyder & Karen Alpert (Queensland), A Simple Regulatory Fix for Citizenship Taxation, 169 Tax Notes Fed. 275 (Oct. 12, 2020)
5. 709 Downloads:  Ruth Mason (Virginia) & Leopoldo Parada (Leeds), The Legality of Digital Taxes in Europe, 40 Va. Tax Rev. ___ (2020)
6. 681 Downloads:  Wei Cui (British Columbia), The Digital Services Tax: A Conceptual Defense, 73 Tax L. Reb. 69 (2019) (reviewed by Young Ran (Christine) Kim (Utah) and Kim Brooks (Dalhousie)) 
7. 673 Downloads:    Kimberly Clausing (UCLA), Emmanuel Saez (UC-Berkely) & Gabriel Zucman (UC-Berkeley), Ending Corporate Tax Avoidance and Tax Competition: A Plan to Collect the Tax Deficit of Multinationals
8. 669 Downloads:  Kimberly Clausing (UCLA), Profit Shifting Before and After the Tax Cuts and Jobs Act
9. 528 Downloads:  Jennifer Blouin (Penn) & Leslie Robinson (Dartmouth), Double Counting Accounting: How Much Profit of Multinational Enterprises Is Really in Tax Havens?
10. 521 Downloads:  Stephen Daly (King's College London) & Ruth Mason (Virginia), State Aid: The General Court Decision in Apple (reviewed by Young Ran (Christine) Kim (Utah))

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Rosenzweig Reviews Next Steps In International Taxation’s Information Revolution By Oei & Ring

Adam Rosenzweig (Washington U.), Big Data and Small Politics: What Is the Future of International Tax Law? (JOTWELL) (reviewing Shu-Yi Oei (Boston College) & Diane Ring (Boston College), When Data Comes Home: Next Steps in International Taxation’s Information Revolution, 64 McGill L. Rev. 707 (2019)):

In my experience, the hallmark of a good article is that, after struggling through a few close reads, I eventually (at times somewhat begrudgingly) conclude I learned something new and valuable.  The hallmark of a great article, on the other hand, is when I reach the same conclusion but after a single, almost effortless feeling, read. The difference is a precision and clarity in writing, structure, and organization that only the confidence instilled from a deep understanding of a subject affords.  Yet at the same time a small part thinks to myself — “it seems so obvious, why didn’t I think of it?”  But of course, to paraphrase a famous movie line, “if I really had come up with the idea, then I would have written it.” But, as I eventually admit to myself, I didn’t.

Such was my experience reading When Data Comes Home: Next Steps in International Taxation’s Information Revolution (“When Data Comes Home”) by Shu-Yi Oei and Diane Ring. Oei and Ring are frequent co-authors, writing on subjects ranging from taxation of the sharing economy like Uber and AirBnB, to the role of large scale financial information leaks like the Panama Papers, to the impact of the Tax Cuts and Jobs Act on reshaping the workplace environment. I mention this only to emphasize what emerges as the particular strength of Oei and Ring’s collaborations — they combine backgrounds and methodologies and apply them to areas of common interest to uncover patterns or trends that otherwise might remain hidden. When Data Comes Home represents another successful example.

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Tax Policy For The Common Good

Jonathan Hannah (Notre Dame), A Tax Policy for the Common Good: Renew the CARES Act’s Charitable Tax Deduction Permanently:

I have had the pleasure of teaching an experiential learning course, Philanthropy and the Common Good, over the past two years at the University of Notre Dame within our political science department and public service minor. Through the course, undergraduates read about the common good from various perspectives, visit local nonprofits, and even award real grants to deserving organizations that serve our greater South Bend community. Teaching a course like this is a joy and truly inspiring. What it has taught me above all is that young people want to give their time, talent, and money to help make society better and foster human flourishing.

Our laws and tax policies should encourage that kind of behavior, yet I fear that they may end up doing the opposite.

With a new administration coming soon, we can expect the typical federal tax policy changes that will come with it. Many taxpayers and policy experts get interested primarily in changes to tax brackets and itemized deductions. However, there is a minor change in federal tax policy under the CARES Act that rightly expands the benefit of charitable giving to taxpayers in all brackets, including those—usually the less wealthy—who do not itemize deductions. ...

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Choi: An Empirical Study Of Mayo And Chevron

Jonathan Choi (Minnesota), Legal Analysis, Policy Analysis, and the Price of Deference: An Empirical Study of Mayo and Chevron, 38 Yale J. on Reg. ___ (2020):

A huge literature contemplates the theoretical relationship between judicial deference and agency rulemaking. But surprisingly little empirical work has studied the actual effect of deference on how agencies draft regulations. As a result, some of the most important questions surrounding deference—whether it encourages agencies to focus on policy analysis instead of legal analysis, its relationship to procedures like notice and comment—have so far been dominated by conjecture and anecdote.

Because Chevron applied simultaneously across agencies, it has been difficult to separate its specific causal effect from other contemporaneous events, like the rise of cost-benefit analysis and the new textualism. This Article contends with this problem by exploiting a unique event in administrative law: the Supreme Court’s 2011 decision in Mayo, which required that courts apply Chevron deference to interpretative tax regulations. By altering the deference regime applicable to one specific category of regulation, Mayo created a natural experiment with a treatment group (interpretative tax regulations) and a control group (all other regulations).

This Article uses natural language processing and various statistical methods to evaluate the causal effect of Chevron deference.

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Columbia Journal Of Tax Law Publishes New Issue

The Columbia Journal of Tax Law has published Vol. 12, No. 1 (Winter 2020):

• Steven M. Sheffrin (Tulane), A Minimal Role for Minimum Taxes, 12 Colum. J. Tax L. 1 (2020)
• Gregg Polsky (Georgia), The Impact of the 2017 Tax Act on Certain Personal Injury Plaintiffs, 12 Colum. J. Tax L. 27 (2020)

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Avi-Yonah & Mazzoni: Coca-Cola: A Decisive IRS Transfer Pricing Victory

Reuven S. Avi-Yonah (Michigan) & Gianluca Mazzoni (S.J.D. (International Tax) 2020, Michigan), Coca-Cola: A Decisive IRS Transfer Pricing Victory, At Last, 169 Tax Notes Fed. 1739 (Dec. 14, 2020):

Coca-Cola [Coca-Cola Co. v. Commissioner, 155 T.C. No. 10 (Nov. 18, 2020)] is the first decisive IRS victory in a major transfer pricing case since 1979. If not reversed on appeal, the outcome will mark an important shift in U.S. transfer pricing litigation and perhaps indicate that the IRS could win other major pending cases, such as the one against Facebook.

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The Top Five New Tax Papers

This week's list of the Top 5 Recent Tax Paper Downloads is the same as last week's list. The #1 paper is #510 among 15,644 tax papers in all-time downloads:

1. [846 Downloads]  A Simple Regulatory Fix for Citizenship Taxation, by John Richardson, Laura Snyder & Karen Alpert (Queensland)
2. [383 Downloads]  Tax Treaty Negotiations: Myth and Reality, by Yariv Brauner (Florida)
3. [282 Downloads]  Is It Time to Eliminate Federal Corporate Income Taxes?, by Edward Lane (Albany) & Randall Wray (UMKC)
4. [268 Downloads]  Rethinking The Estate Planning Curriculum, by Jeffrey Cooper (Quinnipiac)
5. [221 Downloads]  Assessing the Flaws in the 1920s Compromise in the Times of the Burgeoning Digital Economy and the Great Lockdown, by Craig Elliffe (Auckland)

Facebook, The IRS, And The Commensurate With Income Standard

Stephen L. Curtis (Cross Border Analytics), Facebook, the IRS, and the Commensurate With Income Standard, 169 Tax Notes Fed. 1921 (Dec. 21, 2020):

In ongoing transfer pricing litigation, Facebook is challenging the IRS’s adjustment of a buy-in payment under a cost-sharing arrangement (CSA) with an Irish affiliate. The IRS stated that the adjustment was necessary to ensure compliance with the commensurate with income (CWI) standard added to section 482 by the Tax Reform Act of 1986. It is unclear, however, whether the IRS has performed a reg. section 1.482-7(i)(6) periodic adjustment calculation in this case — either before issuing its initial proposed adjustment in 2016 or before its more recently revised adjustment in October 2019.

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Amarante: Unregulated Charity

Eric Franklin Amarante (Tennessee), Unregulated Charity, 94 Wash. L. Rev. 1503 (2019):

The vast majority of charities in the United States operate in a regulatory blind spot: they are neither meaningfully evaluated when they apply for charitable status nor substantively monitored after they receive charitable status. Driven by severe budget constraints, the IRS decided to essentially ignore any charity that claims it will realize less than $50,000 in annual gross receipts. From a practical perspective, the IRS’s decision makes sense. To the extent smaller charities are less likely to cause harm, it is reasonable (perhaps even preferable) to subject them to less scrutiny. This type of prioritization, known as risk-based regulation, has become increasingly popular as regulatory budgets have continued to shrink. But however intuitive, reasonable, or widespread risk-based regulation may seem, the fact remains that the IRS has effectively absolved itself of its duty to oversee the majority of charities.

This Article explores, on both a micro- and macro-level, the negative consequences of the IRS’s decision to leave smaller charities unregulated.

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Why States Should Consider Expanding Sales Taxes To Services, Part 2

Gladriel Shobe (BYU), Grace Stephenson Nielsen (J.D. 2021, BYU), Darien Shanske (UC-Davis) & David Gamage (Indiana), Why States Should Consider Expanding Sales Taxes to Services, Part 2, 99 Tax Notes State 4 (Jan. 4, 2021):

As we explained in our prior essay, state governments are experiencing severe revenue needs because of COVID-19, and expanding state sales tax bases to include services is a promising option for state governments to manage their budget shortfalls. In this, the second essay in this series — a contribution to Project SAFE: State Action in Fiscal Emergencies — we explain some of the implementation details and options for how states might go about expanding their sales tax bases to include services. In particular, we argue that there are some incremental steps that seem to be technically and politically feasible as responses to the current crisis. In particular, we argue the states should start by expanding their sales taxes to include services that are least problematic as a matter of policy and politics.

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McCaffery: The Death Of The Income Tax

Edward J. McCaffery (USC), The Death of the Income Tax (or, The Rise of America’s Universal Wage Tax), 95 Ind. L.J. 1233 (2020):

Recent proposals from Alexandria Ocasio-Cortez (D NY) to raise the top marginal tax rates under the income tax, and from Senator Elizabeth Warren (D Mass), to add a stand-alone wealth tax to the existing mix of taxes, are promising beginnings. They have burst forth from a veritable desert of progressive tax alternatives in the public political discussion. But both sets of ideas suffer from an allegiance to the status quo; both operate within the existing paradigm of nominally attempting to tax “income” and “wealth” — wealth transfers, in the case of the status quo, wealth itself, in the case of Warren’s proposal. This Article examines that status quo to show that the “income” tax is dead, replaced by a universal wage tax in which payroll taxes add on to a wage/income tax to highly, and inescapably, burden labor while wealth is left off the hook of taxation altogether.

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Hasen: How Should Gifts Be Treated Under The Federal Income Tax?

David Hasen (Florida), How Should Gifts Be Treated Under the Federal Income Tax?, 2018 Mich. St. L. Rev. 81 (reviewed by Ari Glogower (Ohio State) here):

No consensus exists regarding the proper income tax treatment of gifts. Some commentators believe the tax should fall on the donor only; others believe it should fall on the donee only; and still others believe it should fall on both the donor and the donee.

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The Top Five New Tax Papers

There is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a paper returning to the list at #4 and a new paper joining the list at #5:

1. [817 Downloads]  A Simple Regulatory Fix for Citizenship Taxation, by John Richardson, Laura Snyder & Karen Alpert (Queensland)
2. [317 Downloads]  Tax Treaty Negotiations: Myth and Reality, by Yariv Brauner (Florida)
3. [275 Downloads]  Is It Time to Eliminate Federal Corporate Income Taxes?, by Edward Lane (Albany) & Randall Wray (UMKC)
4. [262 Downloads]  Rethinking The Estate Planning Curriculum, by Jeffrey Cooper (Quinnipiac)
5. [208 Downloads]  Assessing the Flaws in the 1920s Compromise in the Times of the Burgeoning Digital Economy and the Great Lockdown, by Craig Elliffe (Auckland)