Women Business Owners And Tax Reform

Caroline Bruckner (American University, Kogod School of Business), Doubling Down on a Billion Dollar Blind Spot: Women Business Owners and Tax Reform, 9 Am. U. L. Rev. 47 (2020):

In 1972, the U.S. Census Bureau began tracking the total number of women-owned firms and found women owned only 4.6 percent of all U.S. firms. Since then, the total number of women-owned firms (defined as 51 percent or more as owned by women) has grown exponentially to represent 42 percent of all U.S. firms in 2019. During this period, Congress has supported women’s business ownership by passing legislation designed to eliminate discriminatory lending practices and promote federal contracting and counseling opportunities for women business owners. At the same time, Congress has regularly worked to enhance the U.S. Internal Revenue Code to benefit small businesses on a number of fronts. Most recently, in December 2017, Congress passed major tax reform legislation (commonly referred to as the “Tax Cuts and Jobs Act” or “TCJA”) to provide tax relief for businesses and families. The initial estimated cost to taxpayers was substantial and projected to increase federal deficits by more than $1.8 trillion from 2018-2027.

However, at no point prior to the TCJA did the Congressional tax writing committees consider whether this would be money well spent when it comes to women business owners (“WBOs”). This is problematic because while women-owned firms have grown to more than 40 percent of all U.S. firms, the majority are small businesses operating in service industries and continue to face challenges growing their receipts and accessing capital. The challenges that WBOs face are not new and Congress had the opportunity to consider them in connection with the 2017 TCJA debate. It failed to do so.

This article considers Congress’ efforts to spur economic growth through the TCJA with respect to WBOs and finds that Congress effectively doubled-down on the billion dollar blind spot it has with respect to WBOs and tax expenditures targeted to small businesses.

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Hasen Presents Debt And Taxes Virtually Today At Florida

David Hasen (Florida) presents Debt And Taxes at Florida today as part of its Summer 2020 Virtual Faculty Workshop Series:

The federal income tax conceptualizes loans as an exchange of cash for promises to pay interest and to repay the cash by the term. This formulation is subtly wrong and has resulted in a weaker foundation for the existing rules, which are mostly correct, than they in fact enjoy. Conceptualizing loans as closely akin to rental arrangements places the existing rules on sounder conceptual footing. One exception, however, to the support for current law that the loan-as-rent arrangement provides is in the area of partnership tax. If loans are like cash rentals, the payment of interest is what supports both the borrower’s non-inclusion of loan proceeds and the borrower’s basis credit for them. Consistent with the loan-as-rent formulation, Treasury should provide for allocation of basis credit among partners for the partnership’s recourse debt based on who pays interest, not under the “catastrophe theory” of the current regulations.

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Gergen: A Securities Tax And The Problems of Taxing Global Capital

Mark P. Gergen (UC-Berkeley), A Securities Tax and the Problems of Taxing Global Capital:

An earlier paper, How to Tax Capital, 70 Tax L. Rev. 1 (2016), proposed a new approach to taxing capital owned by U.S. households and nonprofits. The cornerstone is a flat periodic tax on the market value of U.S. publicly traded securities. An annual tax rate of around .8 percent (80 basis points) would roughly approximate the average tax burden on capital income in the U.S. under the existing patchwork system for taxing capital income. A security issuer would remit the tax based on the market value of its securities. A security issuer would receive a credit for U.S. publicly traded securities it holds so that wealth that is represented by a string of publicly traded securities would be taxed once. Wealth held in forms other than publicly traded securities (e.g, private equity and closely held companies) would be taxed by a complementary tax at the same rate on their estimated value. The earlier paper explained why the securities tax is superior to the individual income tax and the corporate income tax as a tax on capital. It eliminates most distortions created by the existing system, it is easy to administer, and it is impossible to evade other than by holding wealth in illiquid forms (which is costly).

This paper examines how the securities tax would function in a global context assuming that other nations do not change their approach to taxing cross-border investment.

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Lesson From The Tax Court: The #1 Habit Of Highly Successful Taxpayers

In Michael K. Simpson and Cynthia R. Simpson v. Commissioner, T.C. Memo. 2020-100 (July 7, 2020) (Judge Buch) the hapless taxpayers — devotee’s of Stephen Covey’s 7 Habits of Highly Effective People — not only failed to separate personal from business expenses, they also confused entity returns and personal returns.  The case is an object lesson on the importance of taxpayers properly accounting for business expenses and personal expenses.  Careful accounting is probably the #1 Habit of Highly Successful Taxpayers.  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 #4 and #5:

1. [347 Downloads]  The Legality of Digital Taxes in Europe, by Ruth Mason (Virginia) & Leopoldo Parada (Leeds)
2. [165 Downloads]  Taxation Of The Digital Economy: Adapting A 21st-Century Tax System To A Twenty-First Century Economy, by Assaf Harpaz (S.J.D. 2020, Duke)
3. [131 Downloads]  Are Two Employers Better than One? An Empirical Assessment of Multiple-Employer Retirement Plans, by Natalya Shnitser (Boston College)
4. [117 Downloads]  Deeming Fictions in the Context of Tax Treaties — Analyzing Arguments in HMRC v. Fowler, by Dhruv Sanghavi (Maastricht)
5. [105 Downloads]  New Technologies and the Evolution of Tax Compliance, by James Alm (Tulane), Joyce Beebe (Rice), Michael Kirsch (Notre Dame), Omri Marian (UC-Irvine) & Jay Soled (Rutgers)

Weekly SSRN Tax Article Review And Roundup: Layser Reviews Galle's The Agency Costs Of Forever Philanthropy

This week, Michelle Layser (Illinois) reviews Brian Galle (Georgetown), The Quick (Spending) and the Dead: The Agency Costs of Forever Philanthropy.

Philanthropists have many options for where to donate, but donor advised funds are a favorite among the ultra-wealthy. These close cousins to private foundations are accounts held through grant-making entities called commercial donor advised fund sponsoring organizations, or “DSOs.” Like private foundations, DSOs are subject to more restrictions than public charities. But unlike private foundations, those restrictions do not include a payout requirement.

As a result, DSOs offer a unique opportunity for donors to amass social influence through contributions that are never actually allocated to grants. Read that again: it is possible that contributions made to a DSO may never be used to fund real charity. In fact, IRS data suggests that roughly a fifth of DSOs averaged a payout rate of zero during the period for which information was available. But do low payout rates like these always reflect donor preferences? In a new essay, Professor Brian Galle offers compelling empirical evidence that the answer is no. At least part of the problem, according to Galle, can be attributed to agency costs that arise after a donor dies.

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Lawsky: Situating Tax Experimentation

Sarah B. Lawsky (Northwestern), Situating Tax Experimentation: A Response to Michael Abramowicz’s Tax Experimentation, 71 Fla. L. Rev. F. 76 (2020):

In Tax Experimentation, [71 Fla. L. Rev. 65 (2019)], Professor Michael Abramowicz proposes that the government employ “tax experiments.” In these experiments, a subgroup of taxpayers would be treated differently than other taxpayers, for purposes of the tax law, for some period of time. The behavior of the treatment group could give the government information about tax policies. After briefly summarizing the article, this response suggests that Professor Abramowicz’s proposal has the potential for significant impact and that taking into account additional issues raised by existing tax scholarship—about tax morale, revenue estimation, and sunset provisions—will make the proposal even stronger.

Blank Presents Automated Legal Guidance Today At The Indiana/Leeds Summer Zoom Tax Workshop Series

Joshua D. Blank (UC-Irvine) presents Automated Legal Guidance (with Leigh Osofsky (North Carolina)) today as part of the Indiana/Leeds Summer Zoom Tax Workshop Series hosted by Leandra Lederman (Indiana) and Leopoldo Parada (Leeds):

Through online tools, virtual assistants and other technology, governments increasingly rely on artificial intelligence to help the public understand and apply the law. The Internal Revenue Service, for example, encourages taxpayers to seek answers regarding various tax credits and deductions through its online “Interactive Tax Assistant.” The U.S. Army directs individuals with questions about enlistment to its virtual guide, “Sgt. Star.” And the U.S. Citizenship and Immigration Services suggests that potential green card holders and citizens speak with its interactive chatbot, “Emma.” Through such automated legal guidance, the government seeks to provide advice to the public at a fraction of the cost of employing human beings to perform these same tasks.

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Galle: The Agency Costs Of Forever Philanthropy

Brian D. Galle (Georgetown), The Quick (Spending) and the Dead: The Agency Costs of Forever Philanthropy:

This Essay offers new empirical evidence of the social cost of forever philanthropy, that is, of institutions that long outlive their founders. Drawing on a relatively unique dataset of foundation donors, and combining it with a large archive of tax returns filed by private foundations, I search for evidence that managers of long-lasting organizations depart significantly from the preferences of the organization’s supporters. I find that a firm’s overhead, or the ratio of administrative expenses to grants made, jumps by about 12% as soon as the organization’s last living donor dies. Payout rates, or the share of assets spent each year, move sharply in the opposite direction, falling about 7% at that time.

I interpret these findings as evidence of substantial agency costs. Since the timing of the donor’s death is relatively random, these outcomes offer convincing causal evidence that the ability of a donor to monitor her foundation’s managers importantly affects whether those managers follow her wishes. I argue that overhead and payout changes in the direction I observe strongly suggest that managers, once free from direct oversight, are operating the firm for their own comfort and security. Thus, by unnaturally extending the lifespan of foundations, law is encouraging wasteful allocation of taxpayer-supported charitable resources.

Therefore, I suggest several policy options that would reduce the agency-cost problem.

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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.  Here is the new list (through July 1, 2020) 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)	191,980	Reuven Avi-Yonah (Michigan)	7,554
2	Dan Shaviro (NYU)	120,857	Lily Batchelder (NYU)	5,173
3	Lily Batchelder (NYU)	116,974	David Kamin (NYU)	4,892
4	David Gamage (Indiana-Bloom.)	116,895	D. Dharmapala (Chicago)	4,135
5	Daniel Hemel (Chicago)	116,579	Daniel Hemel (Chicago)	3,836
6	Darien Shanske (UC-Davis)	110,214	Ruth Mason (Virginia)	3,485
7	David Kamin (NYU)	105,294	Bridget Crawford (Pace)	3,183
8	Cliff Fleming (BYU)	104,927	Diane Ring (Boston College)	2,773
9	Manoj Viswanathan (UC-Hastings)	102,094	David Gamage (Indiana-Bloom.)	2,696
10	Rebecca Kysar (Fordham)	100,922	Shu-Yi Oei (Boston College)	2,680
11	Ari Glogower (Ohio State)	99,709	Hugh Ault (Boston College)	2,598
12	Michael Simkovic (USC)	44,553	Richard Ainsworth (BU)	2,446
13	D. Dharmapala (Chicago)	41,163	Dan Shaviro (NYU)	2,189
14	Paul Caron (Pepperdine)	37,011	Brad Borden (Brooklyn)	1,977
15	Louis Kaplow (Harvard)	33,399	Robert Sitkoff (Harvard)	1,909
16	Richard Ainsworth (BU)	30,210	Darien Shanske (UC-Davis)	1,867
17	Ed Kleinbard (USC)	26,933	Manoj Viswanathan (UC-Hastings)	1,728
18	Vic Fleischer (UC-Irvine)	26,196	Margaret Ryznar (Indiana-Indy)	1,658
19	Jim Hines (Michigan)	25,209	Louis Kaplow (Harvard)	1,607
20	Brad Borden (Brooklyn)	24,765	Paul Caron (Pepperdine)	1,442
21	Robert Sitkoff (Harvard)	24,378	Michael Simkovic (USC)	1,425
22	Ted Seto (Loyola-L.A.)	24,373	Ari Glogower (Ohio State)	1,424
23	Bridget Crawford (Pace)	24,271	Cliff Fleming (BYU)	1,420
24	Gladriel Shobe (BYU)	24,186	Rebecca Kysar (Fordham)	1,418
25	Richard Kaplan (Illinois)	23,768	Katie Pratt (Loyola-L.A.)	1,311

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Bearer-Friend Presents In-Kind Taxpaying: Lessons And Risks Online Today At Ohio State

Jeremy Bearer-Friend (George Washington) presents In-Kind Taxpaying: Lessons and Risks online at Ohio State today as part of its Summer Workshop Series:

This Article examines non-cash remittance of tax obligations (ie; paying taxes "in-kind"). It begins by defining in-kind taxpaying, describing the early roots of in-kind taxpaying, and documenting the broad variety of inkind taxpaying in the US. It then discusses the lessons and risks of in-kind taxpaying. In doing so, this Article makes three contributions. First, it improves our definition of taxpaying by identifying the wide variety of inkind remittances that already occur in our current tax system, offering a taxonomy for how to understand in-kind remittances within a modern economy that relies primarily on cash taxes. Second, it refutes the presumption that in-kind remittance of tax obligations is not viable, thus expanding the tax tools available to local, state, and federal governments and demonstrating how narrow presumptions about tax remittance have predetermined core tax policy choices. Third, it confronts the substantial dangers of in-kind taxpaying, using these risks to propose new principles for limiting the design and administration of in-kind taxpaying.

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South Carolina Law Review Call For Papers: Taxation, Finance, And Racial Justice

The South Carolina Law Review will host its 2021 Virtual Symposium on February 19, 2021, at the University of South Carolina School of Law, hosted on Blackboard Collaborate Ultra. The symposium will specifically examine the intersection of tax law and policy and racial (in)justice at the local, state, and federal levels.

Tax law and policy plays an essential role in defining the ways in which individuals relate to and support one another. Revenue needs and spending policy are inextricably entwined and reflect and reinforce a society’s understanding of what each individual owes to and is owed by the society in which she lives. How tax defines income, whom it taxes, their relative contributions, and the activities that our tax system chooses to subsidize or not create countless points of overlap between tax and racial justice. The goal of this symposium is to critically examine the intersection of tax law and policy, finance, and racial justice through both a chronicling of the past and detailing pathways to reform. Topics may include (but are not limited to): the past and current impact of federal tax law and policy on historically-marginalized groups, the role of state tax systems in exacerbating and/or perpetuating racial injustice, and how tax law may be reimagined to advance racial justice at the state and federal levels.

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The Effect of U.S. Tax Reform On The Tax Burdens Of U.S. Domestic And Multinational Corporations

Scott Dyreng (Duke), Fabio B. Gaertner (Wisconsin), Jeffrey L. Hoopes (North Carolina) & Mary Vernon (Wisconsin), The Effect of U.S. Tax Reform on the Tax Burdens of U.S. Domestic and Multinational Corporations:

We quantify the net effect of recent U.S. tax reform on the tax rates of public U.S. corporations and find they decreased by 7.5 to 11.4 percentage points on average following tax reform. Further, we separately examine the effect of tax reform on purely domestic firms and multinational firms because some key provisions only affect multinational firms. We find both sets of firms benefited from tax reform, although domestics benefited the most. We also find the entirety of multinational tax savings stemmed from tax savings on their domestic operations, not as a result of more favorable taxation of international income. We also find no changes in the federal tax burden on foreign income for firms most likely to be subject to the new anti-abuse provisions. Overall, our findings suggest that despite the recent overhaul in international taxation, the federal tax burden on the foreign earnings of U.S. corporations appears to have been largely unaffected.

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Video Presentations: 23rd Annual Critical Tax Theory Conference At Florida

You can view the Zoom video presentations at the 23rd Annual Critical Tax Theory Conference hosted by the University of Florida Levin College of Law on April 10-11, 2020:

• Neil H. Buchanan (Florida), Efficiency is an Incoherent Concept
• Jonathan Choi (Minnesota), An Empirical Study of Statutory Interpretation in Tax Law, 95 N.Y.U. L. Rev. 363 (2020) (paper)
• Charlotte Crane (Northwestern), Is There a Federal Common Law of Tax? The Supreme Court’s Decision in Rodriguez v. FDIC
• David Elkins (Netanya), The Right and the Good: The Rhetoric of International Taxation
• Leandra Lederman (Indiana), The Fraud Triangle and Tax Evasion (paper)

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Shaviro: What Are Minimum Taxes, And Why Might One Favor Or Disfavor Them?

Daniel Shaviro (NYU), What Are Minimum Taxes, and Why Might One Favor or Disfavor Them?:

Minimum taxes (including global minimum taxes) have serious drawbacks, and generally make sense, if at all, only if otherwise superior options must be ruled out for reasons of optics or political economy. Yet, given the “compared to what?” question that haunts all real-world tax policy-making, one cannot reasonably say that they should never be used. Still, any such use should generally be contingent, reluctant, and based on understanding their structural deficiencies.

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AALS Call For Papers: New Voices In Taxation

Call For Papers: New Voices in Taxation Panel
AALS Section on Taxation/2021 Annual Meeting

The AALS Section on Taxation is pleased to announce the following Call for Papers. Selected papers will be presented at a works-in-progress session at the 2021 AALS Annual Meeting from January 5 through 9. While AALS has not made a decision about whether the conference will be held in person, selected presenters will have the opportunity to present remotely. This program will provide panelists the opportunity to present their work and receive feedback from senior colleagues 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. (Non-tenure track teaching fellowships count for this deadline.). For co-authored papers, all authors must satisfy the eligibility criteria. While we welcome submissions from previous panelists, we will give a preference to scholars whose work has not been selected for a previous new voices panel.

Due date: 5 p.m. PDT, Thursday, August 20, 2020.

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Black Families Pay Significantly Higher Property Taxes Than White Families

Washington Post, Black Families Pay Significantly Higher Property Taxes Than White Families, New Analysis Shows:

State by state, neighborhood by neighborhood, black families pay 13 percent more in property taxes each year than a white family would in the same situation, a massive new data analysis shows.

Black-owned homes are consistently assessed at higher values, relative to their actual sale price, than white homes, according to a new working paper by economists Troup Howard of the University of Utah and Carlos Avenancio-León of Indiana University.

Dorothy Brown, an Emory University law professor who researches systemic racism in tax policy and was not involved in this study, sees the same pervasive effect. “The structure of the property tax system operates to disadvantage black Americans,” she said. “That’s how structural racism is. It’s built into the system. The property tax system itself discriminates against black Americans.”

Troup Howard (Utah) & Carlos Avenancio-León (Indiana), The Assessment Gap: Racial Inequalities in Property Taxation:

We use panel data covering 118 million homes in the United States, merged with geolocation detail for 75,000 taxing entities, to document a nationwide “assessment gap” which leads local governments to place a disproportionate fiscal burden on racial and ethnic minorities. We show that holding jurisdictions and property tax rates fixed, black and Hispanic residents nonetheless face a 10–13% higher tax burden for the same bundle of public services.

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WSJ: Tax Lawyer Ed Kleinbard Reinvented Himself As A Crusading Professor

Following up on my previous posts:

• Death Of Ed Kleinbard (June 29, 2010)
• L.A. Times: Farewell To Ed Kleinbard (July 2, 2020)

Wall Street Journal (James Hagerty), Tax Lawyer Reinvented Himself as a Crusading Professor (July 4, 2020):

Traveling through Europe as a boy in the 1960s, Edward Kleinbard cultivated a precocious interest in medieval history and instructed his parents on which “shabby abbeys” they should appreciate.

The young scholar later aspired to become a history professor. His father, Martin Kleinbard, a partner at the law firm of Paul Weiss, cautioned that academic pay might not allow him to indulge expensive tastes in bicycles and travel. So Edward Kleinbard enrolled in law school at Yale.

Those studies launched him into a 30-year career as a prominent Wall Street tax lawyer at the law firm Cleary Gottlieb. Mr. Kleinbard finally entered academia as a law professor at the University of Southern California in 2009. The delay in launching his academic career was “just long enough for me to have something useful to say,” he wrote. ...

Mr. Kleinbard died June 28 at a hospital in Los Angeles. He was 68 years old and had been under treatment for cancer. Shortly before his death, he completed another book—What’s Luck Got to Do With It?—due to be published [by Oxford University Press] in 2021. ...

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Lesson From The Tax Court: Being Too Smart Precludes Innocent Spouse Relief

Growing up, I was taught to value intelligence.  My dad even had a sign in his office like the one to the right: his read “life is hard, especially if you’re stupid.” 

Being smart surely brings many advantages in life, but we learn today why it serves as a disadvantage when seeking spousal relief under §6015.  Getting spousal relief is hard; it's harder if you are smart. 

In John E. Rogers and Frances L. Rogers v. Commissioner, T.C. Memo. 2020-91 (June 18, 2020) (Judge Goeke), the court denied spousal relief to Mrs. Rogers because it found her too smart to qualify.  It is a useful lesson as many of us prepare our own joint returns for 2019. 

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 #4 and #5:

1. [312 Downloads]  The Legality of Digital Taxes in Europe, by Ruth Mason (Virginia) & Leopoldo Parada (Leeds)
2. [275 Downloads]  COVID-19 and Us Tax Policy: What Needs to Change?, by Reuven Avi-Yonah (Michigan)
3. [168 Downloads]  Coronavirus, Telecommuting, and the 'Employer Convenience' Rule, by Edward Zelinsky (Cardozo) (reviewed by Young Ran (Christine) Kim (Utah) here)
4. [142 Downloads]  Taxation Of The Digital Economy: Adapting A 21st-Century Tax System To A Twenty-First Century Economy, by Assaf Harpaz (S.J.D. 2020, Duke)
5. [125 Downloads]  Are Two Employers Better than One? An Empirical Assessment of Multiple-Employer Retirement Plans, by Natalya Shnitser (Boston College)

Weekly SSRN Tax Article Review And Roundup: Kim Reviews Rethinking Tax For The Digital Economy After COVID-19 By Magalhães & Christians

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Tarcísio Diniz Magalhães (McGill) & Allison Christians (McGill), Rethinking Tax for the Digital Economy After COVID-19 (June 2020).

The coronavirus recession has brought many challenges, including economic and fiscal crisis. Still, there are winners during this difficult time. As the COVID-19 pandemic hit the United States in full scale leading to a nationwide lockdown starting in March, stock prices plummeted sharply for all but a handful of companies. Compare the year-to-date chart of the S&P 500 with that of Zoom, Netflix, and Amazon—companies that are thriving despite the pandemic. The exceptional performance of these companies is seemingly a “windfall” arising from the extreme restrictive measures governments had to impose on other sectors of the economy. As one possible solution for the fiscal crisis, prominent scholars, such as Reuven Avi-Yonah, Emmanuel Saez and Gabriel Zucman, as well as Melani Cammett and Evan Lieberman, have proposed to revive excess profits taxes. In Rethinking Tax for the Digital Economy After COVID-19, co-authors Tarcísio Diniz Magalhães and Allison Christians extend the excess profits tax proposal to the international domain and argue that the world needs to adopt a "Global Excess Profits Tax” (GEP Tax). Magalhães and Christians' paper was presented yesterday at the Indiana/Leeds Summer Tax Workshop Series (the Workshop), hosted by Leandra Lederman (Indiana – Maurer) and Leopoldo Parada (Leeds).

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Christians Presents Rethinking Tax for the Digital Economy After COVID-19 Today At The Indiana/Leeds Summer Zoom Tax Workshop Series

Allison Christians (McGill) presents Rethinking Tax for the Digital Economy After COVID-19 (with Tarcisio Diniz Magalhaes (McGill)) today as part of the Indiana/Leeds Summer Zoom Tax Workshop Series hosted by Leandra Lederman (Indiana) and Leopoldo Parada (Leeds):

Before COVID-19 arrived, policymakers from around the world were busy working on the makings of a new global tax consensus to reflect structural changes in the world economy as a result of the rise of digitalization. COVID-19 disrupted this process by delivering a shock that resulted in major contractions for most firms even as it created enormous windfalls for others, prompting some to call for excess profits taxes, usually associated with wartime economies, as a corrective. Yet the contemporary context for excess profits taxes is fundamentally global today, in a way that excess profit taxation during the world war period was not. As such, to effectively address the fiscal crisis brought on by COVID-19, the world needs a “global excess profits tax”—a GEP tax. This article argues that the vocabulary, the technical tools, and the political determination that were being built for the digital economy can and should be adapted to formulate a GEP tax.

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Avi-Yonah, Driessen, Fleming, Peroni & Shay: Why R&D Should Be Allocated To Subpart F And GILTI

Stephen E. Shay (Harvard), Reuven S. Avi-Yonah (Michigan), Patrick Driessen, J. Clifton Fleming, Jr. (BYU) & Robert J. Peroni (Texas), Why R&D Should Be Allocated to Subpart F and GILTI, 167 Tax Notes Fed. 2081 (June 22, 2020):

In this article, the authors critically appraise the government’s proposal not to allocate research and development deductions to subpart F inclusions and global intangible low-taxed income for foreign tax credit limitation purposes. They say the proposal is an unprecedented interpretation of the statute unsupported by any relevant legislative history that would radically change an R&D allocation method in place since 1977. They argue that the justifications provided in the proposed regulations’ preamble do not stand up to scrutiny.

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Rethinking Privilege For Tax Professionals

Samuel Singer (University of Ottawa), Rethinking Privilege for Tax Professionals: A Tax Policy Perspective:

In Canada, information exchanged between an accountant and a client, while confidential under professional codes of conduct, is not privileged unless it falls within limited common law exceptions. Some countries have legislated to extend limited privilege to accountants, but Canada has not yet done so. This paper uses tax policy principles to critically evaluate the differential treatment of lawyer-client and accountant-client relationships under the rules of privilege in Canada. From a fairness perspective, the distinct treatment of taxpayer information based on the tax advisor consulted is inequitable. Differences in access to privilege create distortions in the tax advice market and increase complexity.The paper also identifies justifications for not extending privilege to accountants.

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Lesson From The Tax Court: Cheshire Cat Jurisdiction Over Passport Revocation Petitions

Congress keeps expanding the Tax Court’s subject matter jurisdiction.  A recent expansion came in 2015 in the cutesy-cutesy named Fixing America’s Surface Transportation Act (FAST Act, get it?), 129 Stat. 1312.  There Congress created §7345 as a revenue offset.  That new section authorizes the IRS to periodically give lists of seriously delinquent taxpayers to the State Department, who is then supposed to deny their passport applications or even yank their passports.  Taxpayers upset at the IRS ratting them out to the State Department can seek judicial review either in the Tax Court or in a federal district court.

Section 7345 is simple in theory but complex in execution.  Last week’s case of Vivian Ruesch v. Commissioner, 154 T.C. No. 13 (June 25, 2020) (Judge Lauber) teaches that the Tax Court’s §7345 jurisdiction is like the Cheshire Cat: it can appear and disappear multiple times with respect to the same taxpayer and the same tax liabilities.  Details below the fold.

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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:

1. [335 Downloads]  Taxation of the Digital Economy: Preliminary Analysis of OECD Pillar 1 Impact Assessment + KPMG Transfer Pricing Study of Amounts B & C, by Allison Christians (McGill)
2. [293 Downloads]  The Legality of Digital Taxes in Europe, by Ruth Mason (Virginia) & Leopoldo Parada (Leeds)
3. [268 Downloads]  COVID-19 and Us Tax Policy: What Needs to Change?, by Reuven Avi-Yonah (Michigan)
4. [196 Downloads]  The Troubling Case of the Unlimited Pass-Through Deduction, by Clint Wallace (South Carolina)
5. [156 Downloads]  Coronavirus, Telecommuting, and the 'Employer Convenience' Rule, by Edward Zelinsky (Cardozo) (reviewed by Young Ran (Christine) Kim (Utah) here)

Kleiman Reviews Hasen's Section 338 And The Step Transaction Doctrine

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by David Hasen (Florida), Section 338 and the Step Transaction Doctrine, 73 Tax Law. ___  (2020).

David Hasen’s recent article on Code § 338 – which governs taxable acquisitions – displays the kind of dizzyingly intricate logical reasoning that attracts many curious law students to tax law. Marshalling legislative history, Congressional intent, and administrative rulings, Hasen makes a compelling case for how § 338 should be applied, and also shows that current regulations under § 338(h)(10) exceed the statute’s boundaries. In doing so, the article offers the sort of elegant doctrinal analysis that lawyers and law students dream of, but rarely get to craft in practice.

Because the article discusses Code § 338, it must start with the Kimball-Diamond (K-D) case, which Hasen dutifully recounts. To refresh the reader’s memory, in K-D the taxpayer bought all the stock of Whaley and then liquidated the resulting subsidiary under a predetermined plan. Because K-D always intended to hold Whaley’s assets directly, the court applied the step-transaction doctrine to collapse the two steps together into one asset purchase. As a result, K-D took the lower cost basis in the assets.

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Turksen Presents Human Factors In Tax Compliance And Tax Crimes Today At The Indiana/Leeds Summer Zoom Tax Workshop Series

Umut Turksen (Coventry) presents The Role of Human Factors in Tax Compliance and Countering Tax Crime today as part of the Indiana/Leeds Summer Zoom Tax Workshop Series hosted by Leandra Lederman (Indiana) and Leopoldo Parada (Leeds):

The term ‘human factors’ covers extra-legal, social, psychological, institutional and organisational aspects affecting the behaviour of tax payers and the enforcement of tax laws, including the fight against tax crime by competent authorities. While legal analysis can proceed along abstract criteria, considering consistency, coherence, clarity of legal regulations, research on human factors has to look at empirical evidence of real-world behavior of citizens as tax payers. When investigating tax crimes, the problem is, that no reliable data exist about tax evasion, tax fraud or asset recovery from such crimes. Most research on tax payers’ behavior uses models of individuals as utility-maximising rational actor as developed in economic theory. Hypotheses derived from these models are then either tested in psychological experiments or used to interpret whatever evidence about tax compliance and tax evasion are available. Two principal approaches can be distinguished in research on tax evasion and compliance focusing on deterrence and motivation respectively.

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Avi-Yonah Delivers Keynote Address On Taxation After The Pandemic Today At Copenhagen Virtual Workshop On Corporate Tax Practice And Inequality

Copenhagen Business School, Three Day Virtual Workshop on Corporate Tax Practice and Inequality:

Scholars from the variety of fields that tackle either corporate sustainability or corporate tax practices do not ‘naturally’ meet for conversations, yet there are links between the various fields that could benefit from further dedicated exploration. Meanwhile, given the intensive media coverage of corporate tax practices and wider societal interest in the topic, much interesting research is underway to explore the linkages and other aspects of corporate tax practice that is relevant for the business in society agenda.

With this background in mind, this workshop will gather together speakers (and workshop participants) who are already involved in, planning or have a keen interest in research on the linkages between corporate tax and sustainability issues. The workshop will include presentation of innovative proposals as well as space for more general conversations about potential future research streams, key concepts that could inform work at this intersection, and theoretical themes or methodological approaches that are relevant to this work. It is our hope that the engagement between researchers from a variety of disciplines and with a variety of perspectives will generate new insights and add value to ongoing research that will enter the literature in the years to come.

The public key note speech by Professor Reuven Avi-Yonah from University of Michigan will be on Taxation after the Pandemic and followed by a Q&A:

If there is one thing that is relatively clear about the Covid-19 pandemic, it is that governments will need new sources of revenue to offset its costs and build a better social safety net. All over the world, governments are borrowing and spending at a pace not seen since World War II, and at the same time revenues from both income and consumption taxes are falling because of pandemic related slowdowns in economic activity. The result is unprecedented levels of debt that even with low interest rates mean inevitable needs for more revenue down the road. Even a country that borrows in its own currency like the US or Japan cannot debt well in excess of GDP forever without risking either inflation (if it creates money to pay off the debt) or a sharp increase in borrowing costs that crowds out other government expenditures at a time when they are most needed to bolster the social safety net, which the pandemic revealed to be quite fragile in many countries including the US.

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Dharmapala: Do Multinational Firms Use Tax Havens To The Detriment Of Other Countries?

Dhammika Dharmapala (Chicago), Do Multinational Firms Use Tax Havens to the Detriment of Other Countries?:

The use of tax havens by multinational corporations (MNCs) has attracted increasing attention and scrutiny in recent years. This paper provides an exposition of the academic literature on this topic. It begins with an overview of the basic facts regarding MNCs’ use of havens, which are consistent with the location of holding companies, intellectual property, and financial activities in havens. However, there is also evidence of significant frictions that limit MNCs’ use of havens. These limits can be attributed to non-tax frictions (such as the legal and business environment in different jurisdictions), to tax law provisions limiting profit shifting, and to the costs of tax planning. There is evidence consistent with the relevance of each of these channels.

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U.S. Parents, Non-U.S. Parents, And Global Firm Taxes

Eric Allen (USC) & Susan Morse (Texas), Does Parenting Matter? U.S. Parents, Non-U.S. Parents, and Global Firm Taxes, 4 J. L., Fin. & Accounting 239 (2019):

In this paper we examine whether, under pre-2018 tax law, a global firm reported a lower income tax expense simply because its publicly traded parent was incorporated outside the United States. Our study considers loss years as well as profit years and isolates the effect of the incorporation location of the parent by considering only U.S. and non-U.S. multi-national companies (MNCs) with a significant U.S. presence. We find that, in profit years, U.S. firms show an effective tax rate that is greater by 5 percentage points compared to non-U.S. firms. Conversely, in loss years, which make up approximately 30% of our sample, U.S. firms have better tax results, which can be expressed as an effective tax rate advantage of 4 percentage points among firms that do not record a valuation allowance. Our study demonstrates that the relative tax cost of organizing as a U.S. firm is smaller than some have suggested, and reinforces the importance of considering loss year results when evaluating tax policies. The results also suggest that the reduction in the U.S. corporate income tax rate under the 2017 Tax Cuts and Jobs Act, or TCJA, will provide smaller benefits to U.S.-parented corporations when loss years are also considered.

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The Effect Of The 2017 U.S. Tax Reform On U.S. Acquisitions Of Foreign Firms

Harald Amberger (Vienna University) & Leslie A. Robinson (Dartmouth), The Effect of the 2017 U.S. Tax Reform on U.S. Acquisitions of Foreign Firms:

The Tax Cuts and Jobs Act (TCJA) of 2017 is the most significant tax reform that the U.S. has experienced in decades, thereby changing incentives for many significant corporate investment decisions. We emphasize the key tax reform provisions altering incentives for outbound investment and examine changing patterns in outbound acquisitions of U.S. firms before and after the TCJA. We find a decreased probability that a foreign target is acquired by a U.S. firm after the TCJA, particularly those that hold IP or are located in low-tax or low-growth markets. We also find a decreased probability that a U.S. firm with untaxed foreign earnings closes a foreign M&A deal after the TCJA, but an increased probability if the firm had no significant foreign presence prior to the TCJA. Taken together our results suggest that the TCJA was largely effective in reducing tax distortions to outbound M&A activity.

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An Empirical Assessment Of The Effects Of Taxation On Growth

Marco Alfò (Università degli Studi La Sapienza), Lorenzo Carbonari & Giovanni Trovato (Università di Roma Tor Vergata), On the Effects of Taxation on Growth: An Empirical Assessment:

Growth models predict that taxation may have permanent effects on per capita real GDP growth. We look at, and test this prediction for 21 OECD countries, over the period 1965-2010. We employ a semi-parametric technique - namely, a Finite Mixture model - to estimate an augmented version of the Barro (1990) model, in order to consider both direct and indirect effects of taxation on capital share parameters. The estimation technique allows to deal with unobserved heterogeneity and to perform a cluster analysis. Our results support the idea that taxes are generally harmful for growth. The coefficient estimates indicate that a cut in the corporate income tax rate by 10 % raises the GDP growth rate by 0.9% while a cut in the personal income tax rate by 10% raises the GDP growth rate by 1%.

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Cockfield, Hellerstein & Lamensch: Taxing Global Digital Commerce

Arthur Cockfield (Queen's University), Walter Hellerstein (University of Georgia) & Marie Lamensch (Institute for European Studies), Taxing Global Digital Commerce (2020):

This latest edition of the preeminent text on the taxation of cross-border digital commerce transactions — formerly titled Electronic Commerce and International Taxation (1999), Electronic Commerce and Multijurisdictional Taxation (2001) — revises, updates, and expands the book’s coverage. It includes a detailed and up-to-date analysis of digital VAT and global income tax developments, and explores the implications of digital commerce for the US state and local sales and use tax regime in the wake of the US Supreme Court decision in South Dakota v. Wayfair, Inc. (2018). Analysing the practical tax consequences of digital commerce from a multijurisdictional perspective and using examples to illustrate the application of different taxes to digital commerce transactions, the book offers in-depth treatment of such topics as: (a) the OECD and G20’s digital tax reforms under the Base Erosion and Profit Shifting project; (b) the new or proposed equalization levies, digital services taxes, minimum taxes and other approaches some countries are adopting to level the tax playing field; (c) how technology enhances cross-border tax information exchanges; (d) how technology change is driving global income tax reforms surrounding nexus and profit attribution; (e) US state and local sales and use tax issues raised by cloud computing; and (e) trends toward collecting VAT from online platforms that facilitate international digital commerce, including cross-border trade in low-value goods and peer-to-peer supplies in the ‘sharing’ economy.

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Shanske & Gamage: How To Interpret Public Law 86-272

Darien Shanske (UC-Davis) & David Gamage (Indiana), The Ordinary Diet of the Law: How to Interpret Public Law 86-272, 96 Tax Notes State 161 (Apr. 13, 2020):

This essay argues against expansive interpretations of Public Law 86-272 (the primary federal statute limiting state income taxation of out-of-state businesses). Specifically, this essay argues against interpretations of Public Law 86-272 that would broaden its coverage to protect business practices that differ from the practices that Congress specifically intended to protect at the time of the statute’s enactment.

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Buchanan Reviews Haneman's Tax Incentives For Green Burial

Neil Buchanan (Florida), The Bereaved Should Not Be Preyed Upon: Can The Tax System Help? (reviewing Victoria Haneman (Creighton), Tax Incentives for Green Burial, 20 Nev. L.J. ___ (2020)):

Dealing with the death of a loved one is one of the most stressful and debilitating experiences in most people’s lives. As Victoria J. Haneman summarizes some key empirical insights:

After a major loss, such as the death of a spouse or child, a third of survivors will suffer detrimental physical or mental health issues. One-quarter of surviving spouses will suffer clinical depression or anxiety within the first year of loss. Grief is frequently accompanied by weight loss, anxiety, despair, hypnagogic hallucinations, temporarily impaired immune response, disorganization, and/or disorientation. (P. 41.)

Setting aside the emotional turmoil, how do Americans deal with the practical side of these inevitable events? Not well at all. ...

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Lesson From The Tax Court: How Taxpayers Can Sometimes Benefit From IRS Errors

Last week my son got a job at Auto Zone, a company that sells auto parts to the entire U.S.  The IRS administers a wickedly complex set of tax laws to same population.  Guess which one employs more people?  Auto Zone.  It has over 87,000 workers to sell you windshield wipers.  The IRS does its job using about 74,000 workers.  Oh, and while both organizations employ computer support, can you guess whose computers are the mother of all outdated legacy systems?  I am sure you can.

Overworked IRS employees and outdated computer systems commit errors.  Last week, two Tax Court cases teach us when taxpayers might benefit from IRS errors.  In Askar Moukhitdinov and Sana Abeuova v. Commissioner, T.C. Memo. 2020-86 (June 16, 2020) (Judge Colvin), a computer error did not invalidate a Notice of Deficiency (NOD) and the taxpayer thus could not get preassessment review.  But in Carl William Cosio v. Commissioner, T.C. Memo. 2020-90 (June 18, 2020) (Judge Vasquez), a human error gave the taxpayer another chance for prepayment review of a disputed IRS assessment.  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 a new #1 paper, a aper returning to the list at #4, and a new paper debuting on the list at #5:

1. [290 Downloads]  Taxation of the Digital Economy: Preliminary Analysis of OECD Pillar 1 Impact Assessment + KPMG Transfer Pricing Study of Amounts B & C, by Allison Christians (McGill)
2. [273 Downloads]  The Legality of Digital Taxes in Europe, by Ruth Mason (Virginia) & Leopoldo Parada (Leeds)
3. [252 Downloads]  COVID-19 and Us Tax Policy: What Needs to Change?, by Reuven Avi-Yonah (Michigan)
4. [184 Downloads]  The Troubling Case of the Unlimited Pass-Through Deduction, by Clint Wallace (South Carolina)
5. [147 Downloads]  Coronavirus, Telecommuting, and the 'Employer Convenience' Rule, by Edward Zelinsky (Cardozo) (reviewed by Young Ran (Christine) Kim (Utah) here)

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews COVID-19 And The American Safety Net

This week, Mirit Eyal-Cohen (Alabama) reviews Andrew Hammond (Florida), Ariel Jurow Kleiman (San Diego) & Gabriel Scheffler (Miami), How the COVID-19 Pandemic Has and Should Reshape the American Safety Net (2020):

Amidst the online pandemic and the strain it is putting on the ability of Americans to meet basic needs, and our government’s capacity to assist them, this important and timely Essay aims to accomplish four goals:  a) identifying the ways in which the pandemic feeds on and exacerbates both racial and economic inequality in America, b) analyzing the government response, c) considering which changes should outlast the current crisis, and d) how government should design social welfare programs to better meet the needs of all Americans in the coming years.  

The authors begin by highlighting the two upshots of the pandemic, that is the epidemiological and the economic crises and their effects on low-income households and communities of color. The latter are at higher risk of contracting COVID-19 and of enduring worse health consequences because low-pay individuals are more likely to live in overcrowded housing conditions, to utilize public transportation, to work in occupations that require close-contact interactions, to be uninsured with limited access to health services, and to suffer from preexisting conditions like diabetes and COPD that puts them at higher risk of COVID-19 complications. Although data on racial disparities in this pandemic is limited, existing studies supports similar premises.

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International Tax Evasion And Human Rights

Elizabeth Donald (LL.M. (Tax) 2021, NYU), Note, Revenue Mobilization Accountability: Combating Harmful Tax Regimes With the Law of Human Rights, 50 Geo. J. Int'l L. 517 (2019):

International tax evasion has gained much consideration in recent years. Between Apple’s assertion that it was tax resident “nowhere,” and a whistleblower’s leak of Luxembourg’s secret tax rulings, the legal field has tried to remedy international tax schemes on all fronts. Recently, a number of human rights advocates and scholars have started to turn their attention to tax evasion. So the argument goes: if Luxembourg issues secret rulings to give corporations lower tax rates, it illegally takes revenue away from other countries that need the money to support their citizens. The issue with this argument is that most human rights treaties, and especially those relating to economic rights, do not have an extraterritorial application—Luxembourg cannot be held accountable for the effects of its actions abroad. For this reason, the line between international tax evasion and human rights is far too attenuated.

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Oei & Ring Present Economic And Financial Policy Responses To COVID-19 Today At The Indiana/Leeds Summer Zoom Tax Workshop Series

Shu-Yi Oei (Boston College) & Diane Ring (Boston College) present Regulating In Pandemic: Evaluating Economic And Financial Policy Responses To The Coronavirus Crisis today as part of the Indiana/Leeds Summer Zoom Tax Workshop Series hosted by Leandra Lederman (Indiana) and Leopoldo Parada (Leeds):

In March of 2020, the United States began to confront a fast-moving public health crisis. Over the next two and a half months, the COVID-19 pandemic killed more than one hundred thousand Americans and wrought unprecedented economic damage across the country. Some forty million U.S. workers filed for unemployment between mid-March, when the first stay-at-home orders were issued, and the end of May, by which point every U.S. state had begun to “reopen” in some capacity.

In responding to the economic aspects of the COVID-19 crisis, U.S. policymakers confronted three interrelated but potentially conflicting policy priorities: (1) providing social insurance and a social safety net to individuals and families in need; (2) managing systemic economic and financial risk; and (3) encouraging critical spatial behaviors to help contain COVID-19 transmission.

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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.  Here is the new list (through June 1, 2020) 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)	191,246	Reuven Avi-Yonah (Michigan)	7,362
2	Dan Shaviro (NYU)	120,723	Lily Batchelder (NYU)	4,985
3	David Gamage (Indiana-Bloom.)	116,722	David Kamin (NYU)	4,851
4	Lily Batchelder (NYU)	116,660	Daniel Hemel (Chicago)	3,873
5	Daniel Hemel (Chicago)	116,321	Ruth Mason (Virginia)	3,044
6	Darien Shanske (UC-Davis)	110,035	Bridget Crawford (Pace)	2,828
7	David Kamin (NYU)	105,138	David Gamage (Indiana-Bloom.)	2,676
8	Cliff Fleming (BYU)	104,851	Diane Ring (Boston College)	2,520
9	Manoj Viswanathan (UC-Hastings)	102,023	Hugh Ault (Boston College)	2,435
10	Rebecca Kysar (Fordham)	100,855	Shu-Yi Oei (Boston College)	2,433
11	Ari Glogower (Ohio State)	99,638	Richard Ainsworth (BU)	2,381
12	Michael Simkovic (USC)	44,460	Dan Shaviro (NYU)	2,226
13	D. Dharmapala (Chicago)	38,979	D. Dharmapala (Chicago)	2,098
14	Paul Caron (Pepperdine)	36,860	Robert Sitkoff (Harvard)	1,941
15	Louis Kaplow (Harvard)	33,290	Darien Shanske (UC-Davis)	1,874
16	Richard Ainsworth (BU)	30,016	Brad Borden (Brooklyn)	1,865
17	Ed Kleinbard (USC)	26,781	Manoj Viswanathan (UC-Hastings)	1,778
18	Vic Fleischer (UC-Irvine)	26,149	Louis Kaplow (Harvard)	1,718
19	Jim Hines (Michigan)	25,156	Margaret Ryznar (Indiana-Indy)	1,591
20	Brad Borden (Brooklyn)	24,532	Ari Glogower (Ohio State)	1,475
21	Ted Seto (Loyola-L.A.)	24,316	Cliff Fleming (BYU)	1,461
22	Robert Sitkoff (Harvard)	24,226	Rebecca Kysar (Fordham)	1,459
23	Gladriel Shobe (BYU)	24,175	Michael Simkovic (USC)	1,426
24	Bridget Crawford (Pace)	23,780	Paul Caron (Pepperdine)	1,387
25	Richard Kaplan (Illinois)	23,749	Yariv Brauner (Florida)	1,329

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Doran: Deferred Compensation Unbound

Michael Doran (Virginia), Deferred Compensation Unbound:

This paper argues for enactment of accrual-based taxation of deferred compensation. Changes made by the Tax Cuts and Jobs Act of 2017 expanded the tax subsidy for deferred compensation, increasing an unjustifiable drain on federal revenues. Under accrual-based taxation, a corporate executive would include deferred compensation in gross income as soon as the deferred compensation vests. Accrual-based taxation better reflects economic income and removes the tax subsidy under current law.

Symposium: The Impact And Future Of The Tax Cuts And Jobs Act

Symposium, The Impact and Future of the Tax Cuts and Jobs Act, 45 Ohio N.U. L. Rev. 501-560 (2019):

• Jennifer Bird-Pollan (Kentucky), Revising the Tax Law: The TCJA and its Place in the History of Tax Reform, 45 Ohio N.U. L. Rev. 501 (2019)
• Daniel Hemel (Chicago), A Place for Place in Federal Tax Law, 45 Ohio N.U. L. Rev. 525 (2019)
• Darien Shanske (UC-Davis), States Can and Should Respond Strategically to Federal Tax Law, 45 Ohio N.U. L. Rev. 543 (2019)
• John Koskinen (Commissioner, IRS), Woodworth Memorial Lecture: The Challenges Facing the IRS of the Future, 45 Ohio N.U. L. Rev. 561 (2019)

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The Deficit Myth: Modern Monetary Theory And The Birth Of The People’s Economy

New York Times op-ed:  Learn To Love Trillion-Dollar Deficits, by Stephanie Kelton (Stony Brook; author, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy (2020)):

As a proponent of what’s called Modern Monetary Theory and as a former chief economist for the Democrats on the Senate Budget Committee, intimately familiar with how public finance actually works, I am not worried about the recent multitrillion-dollar surge in spending.

But there was a time when it would have rattled me too.

I understand the deficit myth because in the early part of my career in economics I, too, bought into the conventional way of thinking. I was taught that the federal government should manage its finances in ways that resemble good old-fashioned household budgeting, that it should hold spending in line with revenues and avoid adding debt whenever possible. ...

It is true that the dollars in your pocket are, in a physical sense, just pieces of paper. It’s the state’s ability to make and enforce its tax laws that sustains a demand for them, which in turn makes those dollars valuable. It’s also how the British Empire and others before it were able to effectively rule: conquer, erase the legitimacy of a given people’s original currency, impose British currency on the colonized, then watch how the entire local economy begins to revolve around British currency, interests and power. Taxes exist for many reasons, but they exist mainly to give value to a state’s otherwise worthless tokens.

Coming to terms with this was jarring — a Copernican moment. By the time I developed this subject into my first published, peer-reviewed academic paper, I realized that my prior understanding of government finance had been wrong.

In 2020, Congress has been showing us — in practice if not in its rhetoric — exactly how M.M.T. works: It committed trillions of dollars this spring that in the conventional economic sense it did not “have.” It didn’t raise taxes or borrow from China to come up with dollars to support our ailing economy. Instead, lawmakers simply voted to pass spending bills, which effectively ordered up trillions of dollars from the government’s bank, the Federal Reserve. In reality, that’s how all government spending is paid for.

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Ryznar: Emergency Funds In The Wake Of The Coronavirus

Margaret Ryznar (Indiana-McKinney), Emergency Funds in the Wake of the Coronavirus, 96 State Tax Notes 65 (Apr. 6, 2020):

The CARES Act targeting the economic effects of the COVID-19 pandemic allows taxpayers to withdraw up to $100,000 from their retirement savings, such as section 401(k) plans, without the typical 10% penalty for early withdrawal. However, retirement accounts do not make for ideal emergency funds. This Article therefore advocates that future legislation should incentivize separate savings funds.

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Fox: Does Capital Bear The U.S. Corporate Tax After All?

Edward G. Fox (Michigan), Does Capital Bear the U.S. Corporate Tax After All? New Evidence from Corporate Tax Returns, 17 J. Empirical Legal Stud. 71 (2020):

This article uses U.S. corporate tax return data to assess how government revenue would have changed if, over the period 1957–2013, corporations had been subject to a hypothetical corporate cash flow tax—that is, a tax allowing for the immediate deduction of investments in long‐lived assets like equipment and structures—rather than the corporate tax regime actually in effect. Holding taxpayer behavior fixed, the data indicate actual corporate tax revenue over the most recent period (1995–2013) differed little from that under the hypothetical cash flow tax. This result has three important implications.

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Morse & Shay: In Altera Reply Brief, Taxpayer Doubles Down On Flawed Argument That The Government Changed Its Tune

Susan C. Morse (Texas) & Stephen E. Shay (Harvard), In Altera Reply Brief, Taxpayer Doubles Down on Flawed Argument that the Government Changed Its Tune:

The Altera reply brief doubles down on an argument that the government brief has already persuasively dispatched: that Treasury gave the impression during the rulemaking process that comparability analysis—i.e., the analysis of comparable transactions between unrelated parties—was relevant to the determination of an arm’s length result under the transfer pricing regulation at issue, and that then the government changed its tune. ...

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Morse Presents Modern Custom in Tax At The Indiana/Leeds Summer Zoom Tax Workshop Series

Susan C. Morse (Texas) presented Modern Custom In Tax as part of the Indiana/Leeds Summer Zoom Tax Workshop Series hosted by Leandra Lederman (Indiana) and Leopoldo Parada (Leeds):

Sometimes we think of custom as old news. But instead custom is alive and well. In nearly every area of modern life, including tax, it provides rules that people follow, unless and until positive law requires otherwise. Tax customs generally arise when private ordering responds to positive tax law. This happens in markets, in the programming of machines, and in compliance advisors’ practices. One example is the historic rule of thumb that valued startup company preferred and common stock using a 10:1 ratio. This custom supported low compensation income inclusions for company founders.

The fact that tax customs are the on-the-ground reality of tax law means that legal scholars and legal policymakers can and should assess these customs. This is a legal process question about institutional competence. When can tax custom competently make the rules that people follow? When, in contrast, should institutions of positive law intervene? 

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Lesson From The Tax Court: How To Pay A Deficiency And Still Get To Tax Court

A basic lesson I teach students is that clients often have choices in where to obtain judicial review of a Notice of Deficiency (NOD).  The usual choices are (1) file a petition in Tax Court and get pre-payment review or (2) pay the proposed deficiency in full and follow the procedures to, eventually, sue for a refund in either federal district court or the U.S. Court of Federal Claims.  The downside of Tax Court is that interest keeps accruing so, if you lose, you lose more than if you had paid and gone the refund route. 

We find a more sophisticated lesson in Robert J. Peacock and Bonita B. Peacock v. Commissioner, T.C. Memo. 2020-63 (May 19, 2020) (Judge Vasquez).  There, at the end of the audit the taxpayers sent the IRS a check for more than the deficiency proposed in the later-issued NOD.  They even wrote “payment” in the memo line.  Yet they were allowed to contest that later-issued NOD in Tax Court.  How can that be?  The answer is below the fold.    

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