Hemel: A Place For Place In Federal Tax Law

Daniel Hemel (Chicago), A Place for Place in Federal Tax Law, 45 Ohio N.U. L. Rev. ___ (2019):

This essay — which is based on remarks at the 42nd annual Ohio Northern University Law Review Symposium — examines the place of place-based provisions in federal tax law. It uses the opportunity zone provisions in the December 2017 tax law as a springboard for considering the successes and (mostly) failures of previous efforts at place-based taxation, and then goes on to imagine possibilities for more productive place-based tax policies. One possibility is to use past location as an indicator for ability to pay. A second is to set different rate structures in different geographic areas (i.e., more progressive rate structures in high-income areas and less progressive rate structures in low-income areas) in order to encourage residential integration. A third is to treat place of upbringing as an asset in a comprehensive inheritance tax regime.

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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 new #1 paper and new papers debuting on the list at #3, #4, and #5:

1. [416 Downloads]  Five Key Research Findings on Wealth Taxation for the Super Rich, by David Gamage (Indiana)
2. [144 Downloads]  The Substantive Canons of Tax Law, by Jonathan Choi (NYU)
3. [116 Downloads]  The Superiority of the Digital Services Tax over Significant Digital Presence Proposals, by Wei Cui (University of British Columbia)
4. [108 Downloads]  Partnership Audit Rules: After the Final Regulations, by Monica Gianni (California State University Northridge)
5. [95 Downloads]  The Distributional and Tax Planning Consequences of the Tax Cuts and Jobs Act, by Jason Oh (UCLA)

Kwon: Statutory Interpretation Meets The Internal Revenue Code

Michelle M. Kwon (Tennessee), Custom-Tailored Law: When Statutory Interpretation Meets the Internal Revenue Code, 97 Neb. L. Rev. 1118 (2019):

When it comes to statutory interpretation, the traditional approaches fail to consider how the laws being interpreted by the courts were actually made. Instead, they tend to presume a uniform lawmaking process. In reality, the lawmaking process tends to be highly variable, both among, and even within, different areas of law. Traditional interpretive approaches also fail to consider the actual institutional capabilities of Congress or the courts. Textualist approaches give primacy to the words that Congress chose. By doing so, they implicitly assume that legislators accurately constructed the statutory text but pay no attention to whether the actual lawmaking process was reliable or trustworthy. By contrast, purposivist approaches idealize the role of judges by assuming they have the capacity to uncover the purposes that motivated lawmakers to enact what they did. But whether judges indeed have the capacity to discern Congress’s intent might be influenced by whether the interpreters are subject-matter specialists or generalists. In short, the traditional approaches are unsuccessful to the extent they fail to account for the quality of statutory texts or the quality of courts interpreting those texts.

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Weekly SSRN Tax Article Review And Roundup: Kim Reviews Chaffee's Collaboration Theory And Corporate Tax Avoidance

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Eric C. Chaffee (Toledo), Collaboration Theory and Corporate Tax Avoidance, 76 Wash. & Lee L. Rev. 93 (2019).

Although there is a famous tax quote by Justice Oliver Wendell Holmes, "I like to pay taxes. With them I buy civilization."; there is nothing wrong with taxpayers’ efforts to minimize their tax liability in manners the legislative body deems permissible. Such “tax minimization” is legally permissible and distinguished from “tax evasion,” which is the illegal nonpayment or underpayment of taxes. Then, what about the gray area between tax minimization and tax evasion, commonly referred to as “tax avoidance?” Is it permissible to pursue tax avoidance, where taxpayers reduce their tax obligations in a manner that technically complies with the law but violates the spirit of the law?

Eric C. Chaffee's new work, Collaboration Theory and Corporate Tax Avoidance, 76 Wash. & Lee L. Rev. 91 (2019), is an effort to answer this difficult question in the corporate tax context. 

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Kysar: Critiquing (And Repairing) The New International Tax Regime

Rebecca M. Kysar (Fordham), Critiquing (and Repairing) the New International Tax Regime, 128 Yale L.J. F. 339 (Oct. 25 2018):

In this Essay, I address three serious problems created — or left unaddressed — by the new U.S. international tax regime. First, the new international rules aimed at intangible income incentivize offshoring and do not sufficiently deter profit shifting. Second, the new patent box regime is unlikely to increase innovation, can be easily gamed, and will create difficulties for the United States at the World Trade Organization. Third, the new inbound regime has too generous of thresholds and can be readily circumvented. There are ways, however, to improve upon many of these shortcomings through modest and achievable legislative changes, eventually paving the way for more ambitious reform. These recommendations, which I explore in detail below, include moving to a per-country minimum tax, eliminating the patent box, and strengthening the new inbound regime.

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Hemel: Bullock v. IRS And The Future Of Tax Administrative Law (Part II)

TaxProf Blog op-ed:  Bullock v. IRS and the Future of Tax Administrative Law (Part II), by Daniel Hemel (Chicago):

In Bullock v. IRS, a federal district court in Montana held that states have standing to challenge the IRS’s rollback of information reporting requirements and that those requirements can only be amended through notice and comment. As my last post explained, the immediate significance of the decision is that noncharitable tax-exempt entities—including but not limited to politically active section 501(c)(4) groups—will have to disclose their large-dollar donors to the IRS (though not to the public). But the potential implications are much broader than that. The decision in Bullock suggests a possible new path for states to exert influence over federal tax policy through administrative law litigation. This post explores that possibility.

Bullock is the latest in a series of cases that might be seen as auguring the end of “tax exceptionalism.” By “tax exceptionalism,” I refer to the long-held view that general principles of administrative law—such as Chevron deference for agency statutory interpretations and the notice-and-comment requirement for agency rules—do not apply in the tax domain. Paul Caron put forward an early and influential critique of that view in his unforgettably titled 1994 article “Tax Myopia, or Mamas Don’t Let Your Babies Grow Up to Be Tax Lawyers.” Kristin Hickman advanced the attack on tax exceptionalism in a series of significant articles starting in the mid-2000s. The effort to end tax exceptionalism scored a major victory in January 2011 when Chief Justice John Roberts, in the case of Mayo Foundation for Medical Education and Research v. United States, said that the court was “not inclined to carve out an approach to administrative review good for tax law only.” Declarations of the “death of tax exceptionalism” soon followed.

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Hemel: Bullock v. IRS And The Future Of Tax Administrative Law (Part I)

Following up on my previous post, Federal Judge Overturns IRS Rule To Shield Political Donor Identities:  TaxProf Blog op-ed:  Bullock v. IRS and the Future of Tax Administrative Law (Part I), by Daniel Hemel (Chicago):

The world of “dark money” became a bit less opaque at the end of last month when a federal district court in Montana struck down an IRS revenue procedure that had shielded section 501(c)(4) organizations from having to disclose large-dollar donors to tax authorities. The decision in the case—captioned Bullock v. IRS—is significant both because of its immediate implications for the oversight of section 501(c)(4) groups and other exempt organizations as well as its broader ramifications for judicial review of IRS actions. Tax law practitioners and professors—whether or not they focus on exempt organizations in their work, study, and teaching—should take note.

This is the first of two posts on Bullock v. IRS and its implications. Here, I’ll lay out the facts of the case and some thoughts on discrete legal issues that it raises. In the next post, I’ll try to situate Bullock within the wider debate over tax exceptionalism (and its alternative, which we might call “tax ordinaryism”). I’ll argue there that Bullock represents both a continuation of the trend toward tax ordinaryism and a novel twist.

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Chaffee: Collaboration Theory And Corporate Tax Avoidance

Eric C. Chaffee (Toledo), Collaboration Theory and Corporate Tax Avoidance, 76 Wash. & Lee L. Rev. 93 (2019):

Tax revenue is the primary source of income for the government, yet corporations regularly engage in tax avoidance. Corporate managers and advisers commonly claim that the corporate form requires that they undertake this behavior because the nature of that form mandates it. Direct and indirect references are made to the classic case of Dodge v. Ford, as providing an edict that corporations must engage in unrelenting profit maximization that requires them to undertake aggressive tax avoidance.

As explored in my co-authored piece with Professor Karie Davis-Nozemack [Georgia Tech), Corporate Tax Avoidance and Honoring the Fiduciary Duties Owed to the Corporation and Its Stockholders [58 B.C. L. Rev. 1425 (2017)], the “Dodge Mandate,” as it may be termed, is far from absolute.

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The Effect Of Tax Avoidance On Capital Structure Choices

Yoojin Lee (California State University, Long Beach), Terry J. Shevlin (UC-Irvine) & Aruhn Venkat (UC-Irvine), The Effect of Tax Avoidance on Capital Structure Choices:

In this study, we examine whether tax avoidance affects firm-level external financing choices. We hypothesize that firms marginally choose equity over debt because tax avoidance generates incremental cash flows but is likely risky. Consequently, we predict that tax avoidance induces a relative price increase in debt relative to equity. Our results are consistent with tax avoidance inducing firms to choose equity over debt. Importantly, our theory and results are distinct from the effects of marginal tax rates on capital structure (e.g., Modigliani and Miller 1963) and we control for marginal tax rates in all specifications. From an identification standpoint, we use path analyses, a plausibly exogenous 9th Circuit decision and cross-sectional tests to support our main results.

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The Taxation Of Religious Organizations In America

Grant M. Newman (J.D. 2019, Harvard), Note, The Taxation of Religious Organizations in America, 42 Harv. J.L. & Pub. Pol'y 681 (2019):

Christ taught his disciples to “[r]ender to Caesar the things that are Caesar’s, and to God the things that are God’s." The Supreme Court has, to an extent, rendered to God what is God’s by repeatedly acknowledging that it will not involve itself in the internal affairs of religious organizations. Nevertheless, the extent to which religious organizations remain vulnerable to involvement from other branches of government remains a pertinent question, especially with regards to the government’s power to tax.

This Note investigates the extent to which religious organizations are vulnerable to such involvement. A prime example of such involvement is Congress’ ability to use the Internal Revenue Code to the detriment of religious organizations. As it ensures that what is Caesar’s (i.e., taxes) is rendered to Caesar (i.e., the federal government), any policy of Congress and the Internal Revenue Service (I.R.S.) that thwarts the faithful from rendering to God what is God’s has the potential to impose a prohibitive burden on the operation of religious organizations. The potential to hinder the work of religious organizations through taxation is great. Indeed, “the power to tax involves the power to destroy.” Insofar as Congress retains the power to tax religious organizations, it likewise maintains the power to destroy.

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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:

1. [530 Downloads]  The President's Tax Returns, by Andy Grewal (Iowa)
2. [400 Downloads]  Five Key Research Findings on Wealth Taxation for the Super Rich, by David Gamage (Indiana)
3. [170 Downloads]  Fixing the Five Flaws of the Tax Cuts and Jobs Act, by Kimberly Clausing (Reed College)
4. [128 Downloads]  The Substantive Canons of Tax Law, by Jonathan Choi (NYU)
5. [105 Downloads]  Recent Developments in Federal Income Taxation: The Year 2018, by Bruce McGovern (South Texas) & Cassady Brewer (Georgia State)

Tax, Technology And Privacy: The Coming Collision

Andrew Leahey (Tax LL.M. 2019, NYU), Tax, Technology and Privacy: The Coming Collision:

In the last decade a dominant storyline in the realm of technology and the law has been the rise of Big Data and the various state responses, or lack thereof, to concerns stemming from the same. At first, technology companies pursued methods of monetizing accumulated data almost by default — massive stores of data were a byproduct of other business ventures. Like early wildcat oil drillers that struck natural gas, the stores of data was seen more as a hindrance than anything else. Over time, oil companies found a use for natural gas and Silicon Valley found a use for our stores of data. The next trove of data is going to be found in our tax information. Let us insure that this time, from the outset, our privacy is kept front of mind.

Grinberg: Reestablishing International Tax Order

Itai Grinberg (Georgetown), Stabilizing 'Pillar One': Corporate Profit Reallocation in an Uncertain Environment:

This paper is about how the world reestablishes international tax order.

The paper focuses on the OECD’s work on profit reallocation and asks whether this multilateral effort can be successful in stabilizing the international tax system. The analysis centers on the current leading concepts for reallocating profit among jurisdictions under what is known as “Pillar One” of the OECD work programme. To analyze whether any Pillar One concept can be turned into a stable multilateral regime, it is necessary to specify certain elements of what a proposal to reallocate profits might entail. Accordingly, this paper sets out two strawman proposals. One strawman uses a “market intangibles” concept that explicitly separates routine and residual returns. The other strawman may reach a similar result, but does not explicitly attempt to separate routine and residual returns. Instead, in current OECD parlance, it might be described as a “distribution-based” approach.

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Avi-Yonah & Fishbien: Tax Expenditures And Horizontal Equity — A Lost Lesson From Stanley Surrey

Reuven S. Avi-Yonah (Michigan) & Nir Fishbien (S.J.D. 2020, Michigan), Tax Expenditures and Horizontal Equity: A Lost Lesson from Stanley Surrey:

Tax expenditures are “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.’’ The concept of tax expenditures was invented by the first Assistant Secretary for Tax Policy, Stanley S. Surrey, in the late 1960s, and was codified by the Congressional Budget Act of 1974, which requires that a list of tax expenditures be included in the US budget. The tax expenditure budget relies on the Haig Simons definition of income as the base, while acknowledging the fact that not all deviations from Haig Simons are treated as tax expenditures.

The basic problem with attempts to define tax expenditures against a Haig Simons baseline is that it is not clear why such deviations are normatively problematic. Put bluntly, who cares whether a specific tax provision is a deviation from some theoretical definition of income by two long dead economists? That, presumably, is why most of the literature now accepts the Weisbach and Nussim view that the debate between Surrey and Bittker was meaningless, and we should just learn to live with the tax expenditures.

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Foreign Branch Income Issues In Transitioning From GILTI To FDII

Jeffery M. Kadet (University of Washington) & David Koontz, Transitioning From GILTI to FDII? Foreign Branch Income Issues, 164 Tax Notes 57 (July 1, 2019): 

In this article, Kadet and Koontz discuss certain issues that must be considered when a multinational analyzes whether it should transition certain operations conducted within a CFC (along with the associated income) into a domestic group member so as to achieve an FDII-qualifying structure. In doing so, there will likely be a need to move some key income-earning operations and functions to the United States to assure that the FDII foreign branch rule is not violated.

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Aprill: Revisiting Federal Tax Treatment Of States, Political Subdivisions, And Their Affiliates

Ellen P. Aprill (Loyola-L.A.), Revisiting Federal Tax Treatment of States, Political Subdivisions, and their Affiliates, 23 Fla. Tax Rev. ___ (2019):

Several provisions of the 2017 tax legislation, known as Tax Cuts and Jobs Act (TCJA), focused attention on federal taxation of states, their political subdivisions and their affiliates. Most prominently, TCJA limited the federal income tax deduction for state and local taxes to $10,000. States have sued and attempted work-arounds. Another provision, which imposes an excise tax of 21% on “excessive compensation” paid by certain entities not subject to income tax, inadvertently failed to subject to tax entities that are integral parts of states or political subdivisions or are themselves political subdivisions. Calls for a technical correction have so far gone unheeded.

More than twenty years ago, I wrote two articles about federal taxation of state governments, political subdivisions, and their affiliates. The Teacher’s Manual to a leading casebook on nonprofit organizations describes these two articles as “as much as anyone knows about this confusing patchwork and its ramifications.” The passage of time, changes in my own thinking and new developments call for my returning to this topic. I do so here. Moreover, far more than in my earlier work, I examine the applicable rules regarding charitable contribution deductions to these entities as well as discuss the special rules applicable to governmental charities and the category of charities that lessen the burdens of government.

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SSRN Tax Professor Rankings

SSRN has updated its monthly ranking of 750 American and international law school faculties and 3,000 law professors by (among other things) the number of paper downloads from the SSRN database.  This ranking includes downloads from two 30- and 35-page papers by 12 tax professors on the new tax legislation that garnered a lot of media attention (including the New York Times and Washington Post) and generated a massive amount of downloads (the papers are the most downloaded tax papers of all-time by over 200%).  See Brian Leiter (Chicago), 11 Tax Profs Blow Up The SSRN Download Rankings. (For some reason, Mitchell Kane (NYU) — the twelfth academic co-author of the two papers — is not included in the SSRN download rankings (although the downloads are included on his individual author page)).  Here is the new list (through August 1, 2019) of the Top 25 U.S. Tax Professors in two of the SSRN categories: all-time downloads and recent downloads (within the past 12 months):

		All-Time		Recent
1	Reuven Avi-Yonah (Michigan)	184,986	Reuven Avi-Yonah (Michigan)	12,878
2	Dan Shaviro (NYU)	118,783	Daniel Hemel (Chicago)	10,565
3	David Gamage (Indiana-Bl.)	114,647	David Gamage (Indiana-Bl.)	8,640
4	Daniel Hemel (Chicago)	113,015	Darien Shanske (UC-Davis)	8,555
5	Lily Batchelder (NYU)	111,898	Dan Shaviro (NYU)	8,305
6	Darien Shanske (UC-Davis)	108,497	Manoj Viswanathan (UC-Hastings)	7,627
7	Cliff Fleming (BYU)	103,607	Ari Glogower (Ohio State)	7,290
8	David Kamin (NYU)	100,506	David Kamin (NYU)	7,073
9	Manoj Viswanathan (UC-Hastings)	100,501	Lily Batchelder (NYU)	7,024
10	Rebecca Kysar (Fordham)	99,652	Cliff Fleming (BYU)	6,803
11	Ari Glogower (Ohio State)	98,391	Rebecca Kysar (Fordham)	6,735
12	Michael Simkovic (USC)	43,223	Richard Ainsworth (BU)	2,663
13	D. Dharmapala (Chicago)	37,181	Michael Simkovic (USC)	2,650
14	Paul Caron (Pepperdine)	35,672	Bridget Crawford (Pace)	2,591
15	Louis Kaplow (Harvard)	31,925	Brad Borden (Brooklyn)	2,495
16	Richard Ainsworth (BU)	27,900	Kyle Rozema (Chicago)	2,493
17	Ed Kleinbard (USC)	25,959	D. Dharmapala (Chicago)	2,335
18	Vic Fleischer (UC-Irvine)	25,557	Ruth Mason (Virginia)	2,221
19	Jim Hines (Michigan)	24,586	Robert Sitkoff (Harvard)	2,051
20	Gladriel Shobe (BYU)	24,043	Jacob Goldin (Stanford)	1,976
21	Ted Seto (Loyola-L.A.)	23,574	Louis Kaplow (Harvard)	1,856
22	Richard Kaplan (Illinois)	23,450	Hugh Ault (Boston College)	1,849
23	Brad Borden (Brooklyn)	23,022	Joe Bankman (Stanford)	1,716
24	Robert Sitkoff (Harvard)	22,713	Yariv Brauner (Florida)	1,635
25	Katie Pratt (Loyola-L.A.)	22,295	George Yin (Virginia)	1,558

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A Global Financial Transaction Tax: Theory, Practice And Potential Revenues

Atanas Pekanov & Margit Schratzenstaller (Austrian Institute of Economic Research), A Global Financial Transaction Tax — Theory, Practice and Potential Revenues:

This study presents in detail the concept of a financial transaction tax (FTT) and the theoretical and empirical evidence in favour and against introducing it, the potential revenues, different implementation designs and its ability to correct various market failures. We analyse the benefits and challenges of introducing a tax on financial transactions, putting special focus on the introduction of such a tax on a world-wide scale. For a number of reasons, international cooperation is deemed a central prerequisite for an efficient FTT. The purpose of the tax is to raise substantial revenues and help dampen excessive financial market speculation and market volatility. An FTT would ensure that the financial sector contributes more substantially to government revenues. In its optimal form, the tax would be broad-based and there will be no financial instrument types exempted. In a second step, we analyse from a political economy perspective the prospects, the current status, and the lessons learnt from the European discussion on the implementation of an FTT. Finally, we calculate the revenue potential of a global FTT and report how much revenues would accrue to specific countries. We estimate that the tax, if imposed globally and taking into account still evasion, relocation and lock-in effects, can bring significant revenues — between 237.9 and 418.8 billion $ annually.

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Smith: Exploiting The Charitable Contribution Deduction's Hypersalienc

Eric Smith (Weber State), Exploiting the Charitable Contribution Deduction's Hypersalience, 2019 Utah L. Rev. ___:

Hypersalience describes the cognitive error that occurs when taxpayers are highly aware of a tax provision generally, but fail to correctly perceive its associated limitations. The charitable contribution deduction provides a strong example of hypersalience as taxpayers have general awareness that tax benefit follows charitable giving, but often fail to understand the deduction’s limits—most notably the standard deduction’s preclusion to any direct tax benefit for charitable giving. As cognitive error drives inaccurate perception of the tax law, the question arises: what, if anything, should the government do to correct taxpayer understanding?

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Should We Tax Soda? An Overview Of Theory And Evidence

Hunt Allcott (NYU), Benjamin Lockwood (Wharton) & Dmitry Taubinsky (UC-Berkeley), Should We Tax Soda? An Overview of Theory and Evidence, 33 J. Econ. Persp. 202 (2019):

Taxes on sugar-sweetened beverages (SSBs) are growing in popularity and have generated an active public debate. Are they a good idea? If so, how high should they be? Are such taxes regressive? Americans and some others around the world consume a remarkable amount of SSBs, and the evidence suggests that this generates significant health costs. Building on recent work by Allcott, Lockwood, and Taubinsky (2018) and others, we review the basic economic principles for an optimal sin tax on SSBs. The optimal tax depends on (1) externalities: uninternalized costs to the health system from SSB consumption; (2) internalities: costs consumers impose on themselves by overconsuming sweetened beverages due to poor nutrition knowledge or lack of self-control; and (3) regressivity: how much the financial burden and the internality benefits from the tax fall on the poor. We then summarize the empirical evidence on the key parameters that determine how large the tax should be, which suggests that SSB taxes can be welfare enhancing. We end with seven concrete suggestions for policymakers considering an SSB tax. First, tax grams of sugar, not ounces of soda. Second, focus on counteracting externalities and internalities, not on minimizing SSB consumption. Third, design soda taxes to reduce consumption among people generating the largest externalities and internalities. Fourth, make taxes consistent across geographic boundaries. Fifth, use caution when pre-allocating tax revenues. Sixth, when judging regressivity, consider internality benefits, not just who pays the taxes. Finally, our read of the evidence is that taxing soda is probably a good idea.

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Dharmapala & Khanna: Stock Market Reactions To India's 2016 Demonetization: Implications For Tax Evasion, Corruption, And Financial Constraints

Dhammika Dharmapala (Chicago) & Vikramaditya Khanna (Michigan), Stock Market Reactions to India's 2016 Demonetization: Implications for Tax Evasion, Corruption, and Financial Constraints, 16 J. Empirical Legal Stud. 281 (2019):

On November 8, 2016, the Indian government made a surprise announcement that certain currency notes (representing 86% of the currency then in circulation) would no longer be legal tender (although they could be deposited in banks over a limited period). The stated reason for this sudden “demonetization” was to combat tax evasion and corruption associated with “unaccounted-for” cash. We compute abnormal returns for different subsamples of firms — defined by industry, ownership structure, and other characteristics — on the Indian stock market around this event. There is little evidence that sectors thought to be associated with greater tax evasion or corruption experienced significantly different returns. However, we find substantial positive returns for banks and for state owned enterprises (SOEs).

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Burke: Exploiting The Medicare Loophole

Karen C. Burke (Florida), Exploiting The Medicare Loophole, 21 Fla. Tax Rev. 570 (2018):

Section 1411 imposes a 3.8 percent surtax on investment income of high earners that mirrors Medicare taxes on earned income. The enactment of the net investment income tax highlights gaps in the employment tax rules for passthrough entities — particularly limited partnerships, S corporations, and limited liability companies. This article considers how businesses can be structured to allow active high-income owner-employees of passthrough entities to avoid all three of the 3.8 percent Medicare taxes (SECA, FICA and section 1411). Part I considers the anachronistic limited partner exception to the SECA tax and the well-known S corporation loophole under the FICA tax, as well as the failure of section 1411 to reach active business income that avoids these employment taxes. Part II considers the recent Renkemeyer case, which has reignited the employment tax debate and threatens to upend structures used in investment and real estate funds to shelter management fees from all of the 3.8 percent taxes.

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AALS Tax Section Call For Papers Due Aug. 15: New Voices In Tax Law & Policy

The AALS Section on Taxation has issued a Call for Papers to be presented at a works-in-progress session at the 2020 AALS Annual Meeting in Washington, D.C. The works-in-progress session is tentatively scheduled for Friday, January 3, 2020. This program will provide speakers the opportunity to present their work and receive feedback from commentators in the field.

Eligibility: Scholars teaching at AALS member schools or non-member fee-paid schools with seven or fewer years of full-time teaching experience as of the submission deadline are eligible to submit papers. For co-authored papers, all authors must satisfy the eligibility criteria.

Due date: 5 p.m. PDT, Thursday, August 15, 2019.

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Lesson From The Tax Court: Know The Difference Between IRAs And 401(k)s

Every year I lecture on the time value of money.  Part of the lecture compares a normal taxed savings account funded with after-tax dollars to a tax-free retirement account funded with pre-tax dollars.  At the end of my assumed 40-year investment period the difference astonishes the students and drives home my main point about the time value of money.

The effectiveness of my point does not depend on which type of tax-deferred retirement account is being used.  I figure most of my students will make use of a traditional IRA, or Roth, or spousal, or will be able to make use of a 401(k) plan or a 408(k) SEP plan.  It does not matter which type of plan they use: the power of tax deferral works in all of them.

But the type of retirement plan can make a huge difference to the treatment of early withdrawals.  That is the lesson from last week’s case of Lily Hilda Soltani-Amadi and Bahman Justin Amadi v. Commissioner, T.C. Summary Opinion 2019-19 (Aug. 8, 2019) (Judge Armen).  The taxpayers there had made an early withdrawal from their 401(k) plan to help buy their first home.  The distribution would have been penalty-free had it come from an IRA.  But it came from a 401(k) and so, while permitted, it carried with it the §72(t) 10% penalty.  Details below the fold.

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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 new papers debuting on the list at #2 and #5:

1. [527 Downloads]  The President's Tax Returns, by Andy Grewal (Iowa)
2. [374 Downloads]  Five Key Research Findings on Wealth Taxation for the Super Rich, by David Gamage (Indiana)
3. [158 Downloads]  Fixing the Five Flaws of the Tax Cuts and Jobs Act, by Kimberly Clausing (Reed College)
4. [122 Downloads]  Back to Basics: Rethinking Normative Principles in International Tax, by Shay Shimon Moyal (S.J.D. 2020, Michigan)
5. [122 Downloads]  The Substantive Canons of Tax Law, by Jonathan Choi (NYU)

Todd: Phantom Income And Domestic Support Obligations

Timothy M. Todd (Liberty), Phantom Income and Domestic Support Obligations, 67 Buff. L. Rev. 365 (2019):

The tax code is designed to raise government revenue. Domestic support obligations (DSOs) — namely, child support and spousal support — are designed to ameliorate the financial burdens that arise upon divorce. To determine the amount of domestic support obligations, statutes often refer to commonly used taxation concepts, such as “income.”

Courts determining domestic support obligations have been confronted with the question of how to treat “phantom income” — that is, amounts that are includible as gross income under the federal tax code but that have not resulted in any actual current cash receipt. Individuals obligated to make domestic support payments have argued that phantom income should not be included when calculating or modifying such obligations because the individual’s ability to pay has not materially changed. This Article analyzes the intersection of federal tax law and domestic support obligations concerning phantom income.

This Article considers several solutions — judicial and legislative — to address the phantom income issue in the domestic support context.

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Wallace: Tax Policy And Our Democracy

Clint Wallace (South Carolina), Tax Policy and Our Democracy, 118 Mich. L. Rev. ___ (2019) (reviewing Camille Walsh (Washington), Racial Taxation: Schools, Segregation, and Taxpayer Citizenship, 1869–1973 (University of North Carolina Press 2018), and Anthony C. Infanti (Pittsburgh), Our Selfish Tax Laws: Toward Tax Reform That Mirrors Our Better Selves (MIT Press 2018)):

Two new books explore the many ways in which U.S. tax policies and tax systems have promoted social injustices and continue to do so. In Racial Taxation, Camille Walsh provides a vivid depiction of the under-scrutinized fiscal history of elementary through secondary education in the United States, from the post-Reconstruction era until San Antonio Independent School District v. Rodriguez. In Our Selfish Tax Laws, Anthony Infanti details how existing U.S. Federal tax policies manifest problematic power structures that exclude and disadvantage many if not most taxpayers. Together, these books dissect a variety of flawed tax structures and reveal that tax discrimination grounded in race, gender, heteronormativity, differences in physical ability, and, pervasively, power dynamics, are not a malignant tumor on an otherwise healthy body, but rather are a systemic, pathological affliction on the entire U.S. fiscal state. This essay reviews Walsh’s and Infanti’s work, and builds on the authors’ rich historical and analytical contributions to ask: how can tax policy be reformed so that, rather than betraying and undermining the foundations of American democracy, it works to strengthen democratic institutions and their connection with members of a democratic society?

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