The Worker Classification Dilemma: The IRS Test And The Platform Economy

Griffin Toronjo Pivateau (Oklahoma State; Google Scholar) & Gina Nerger (Tulsa), The Worker Classification Dilemma: The IRS Test and the Platform Economy, 53 Tex. Tech L. Rev. 535 (2021):

The American workplace continues to evolve. The creation of the platform economy enabled employers to use independent contractors to perform work that employees traditionally performed. Proponents suggest that the platform economy offers the benefits of entrepreneurship to great numbers of people who would otherwise lack opportunity. Detractors argue that the platform economy robs workers of the benefits and protections provided to employees.

Courts, states, and administrative agencies use a confusing array of classification tests to determine whether workers are employees or independent contractors. These tests share roots in the common law agency test, which grew out of the historic rules of the master-servant relationship. The common law agency test, created in a different time and for a different purpose, does not address the problems of the modern workplace. In search of a test better suited to dealing with issues created by the platform economy, many states have recently turned to the use of the ABC worker classification test, a test that begins with the rebuttable presumption of employee status.

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Thomas & Scharff: Fake News And The Tax Law

Kathleen DeLaney Thomas (North Carolina; Google Scholar) & Erin Scharff (Arizona State), Fake News and the Tax Law, 80 Wash. & Lee L. Rev. 803 (2023):

The public misunderstands many aspects of the tax system. For example, people frequently misunderstand how marginal tax rates work, misperceive their own average tax rates, and believe they benefit from tax deductions for which they are ineligible. Such confusion is understandable given the complexity of our tax laws. Unfortunately, research suggests these misconceptions shape voter preferences about tax policy which, in turn, impact the policies themselves.

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Tax Policy And COVID-19: An Argument For Targeted Crisis Relief

Assaf Harpaz (Drexel), Tax Policy and COVID-19: An Argument for Targeted Crisis Relief, 31 Cornell J.L. & Pub. Pol'y 235 (2021):

The COVID-19 pandemic caused a sharp global economic decline. By the end of 2021, the U.S. government responded to the downturn with record fiscal legislation totaling over $5 trillion, which includes considerable tax relief. Most notably, the U.S. government distributed over $800 billion in three rounds of advanced refundable tax credits (known as recovery rebates, or stimulus checks) to most households. Tax relief has been unprecedented in scale but has often been the product of political circumstances rather than principled policy design. Tax relief thus remains largely undertheorized and politically motivated.

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Lesson From The Tax Court: Temporary vs. Indefinite Commutes

When I worked in downtown Washington D.C. I had a 50+ minute commute from my home in Wheaton Md.  But I did not have to drive.  I walked 15 minutes to Wheaton metro, had a 30+ minute metro ride to Federal Triangle, and then a 5 minute walk to my office.  That was a lovely commute.  Longish but low-stress.

Now I work at Texas Tech University in Lubbock.  This is not a town for walking.  So I drive to work.  But it’s only 4-6 minutes from my home.  Sweet!  I really cannot complain. 

Lots of folks, however, have the worst of both worlds: they have a long commute and they have to drive it.  That can be stressful.  And expensive.

It is not surprising that folks with really long drive commutes might think they should be able to deduct their commuting costs, especially if they are at a job where continued employment may be uncertain.  To them, their work seems temporary because they know it might end at any time.  But in Joseph Michael Ledbetter and Ashley Jones Ledbetter v. Commissioner, T.C. Summ. Op. 2023-19 (May 25, 2023) (Judge Paris), we learn that just because work might end at any time does not make it temporary.  It makes it indefinite.  And while travel to a temporary work location outside the area where the taxpayer lives may be deductible, travel to an indefinite work location is not.  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 #1 and #5:

1. [340 Downloads]  The Unacknowledged Realities of Extraterritorial Taxation, by Laura Snyder (Association of Americans Resident Overseas)
2. [311 Downloads]  Taxation of Information and the Data Revolution, by Yariv Brauner (Florida; Google Scholar)
3. [238 Downloads]  Capital Taxation and Market Power, by Kimberly Clausing (UCLA; Google Scholar)
4. [231 Downloads]  The Employment Effects of Tax Subsidies for the Construction of Amazon Facilities, by Ike Brannon (Jack Kemp Foundation) & Matthew Winden (University of Wisconsin (Whitewater); Google Scholar)
5. [196 Downloads]  The Inflation Reduction Act's Impact On Tax Compliance—And Fiscal Sustainability, by Natasha Sarin (Yale; Google Scholar; Former Counselor on Tax Policy, U.S. Treasury Department) & Mark J. Mazur (Former Assistant Secretary for Tax Policy, U.S. Treasury Department),

Today's Law, Society, And Taxation Panels

Today's Law, Society, and Taxation panels at the 2023 Law & Society Association Annual Meeting in San Juan, Puerto Rico:

Taxation & Social Impact (Tessa Davis (South Carolina), Chair/Discussant):

The tax code is used in a vareity of ways to enact or support social goals that are not necessarily explicitly tied to economic ends. The papers in this session will think about how tax and spending programs are used to achieve particular ends. Papers in the session will consider both intended and unintended consequences of the relevant provisions on the social outcomes of the individual taxpayers affected by the rules.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Shaviro's Income Versus Consumption Taxation In 'The Myth of Ownership'

This week, David Elkins (Netanya; Google Scholar) reviews a new paper by Daniel Shaviro (NYU, Google Scholar), Ancillary Benefits and Income Versus Consumption Taxation in Liam Murphy’s and Thomas Nagel’s 'The Myth of Ownership':

The question of whether income or consumption is a more appropriate tax base has occupied a prominent place in the tax policy discourse since about the 1970s. Although deliberated in the literature for centuries — the names Hobbes, Smith, Mill, Fisher, and Kaldor come to mind — it appears to have been William Andrews’ 1974 Harvard Law Review article, A Consumption-Type or Cash Flow Personal Income Tax, that brought the issue to the attention of tax academics and policymakers. That article, which may also be credited with having introduced the Cary Brown theorem into the legal academic discourse, triggered debate concerning the proper tax base and analysis of the extent to which the current income tax actually does tax income. It may also have indirectly sparked the call in some political quarters to replace the income tax with a consumption tax.

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Today's Law, Society, And Taxation Panels

Today's Law, Society, and Taxation panels at the 2023 Law & Society Association Annual Meeting:

Tax Advocacy & Tax Justice (Mirit Eyal-Cohen (Alabama; Google Scholar), Chair/Discussant):

Tax lawyers operate inside a system that often challenges traditional notions of zealous advocacy in lawyering. Further, decisions around tax law, tax policy, and tax lawyering must be made in the larger context of goals around social policy and desired social outcomes. The papers in this session examine both particular tax lawyers but also the larger issues faced by tax lawyers as a whole. Also considered is the role the tax law plays in affecting lawyers' actions and infuencing their decisions.

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Grewal: Billionaire Taxes And The Constitution

Andy Grewal (Iowa; Google Scholar), Billionaire Taxes and the Constitution, 57 Ga. L. Rev. ___ (2023):

The United States now has ten times as many billionaires as it had just a few decades ago. This ever-growing class has sparked congressional interest in “billionaire tax” proposals. These proposals would generally require that billionaires recognize income when their asset values increase, even if they have not sold their assets.

Under existing doctrine, billionaire taxes likely violate the realization requirement embedded in the Sixteenth Amendment of the Constitution. However, this Article argues that existing Sixteenth Amendment doctrine suffers from deep infirmities and theoretical inconsistencies. With the conceptually sound interpretive approach advanced in this Article, a billionaire tax would pass constitutional muster.

Wallace: A Democratic Perspective On Tax Law

Clint Wallace (South Carolina), A Democratic Perspective on Tax Law, 98 Wash. L. Rev. ___ (2023):

As democracies around the world have faltered, legal scholars in fields as diverse as election law, labor law, and administrative law have turned to tax law to repair and support democratic governments. Taxation offers a toolset well equipped to address concerns raised by democratic theorists focused on the conditions that shape a democratic community and help it to flourish. Tax laws can rectify social dynamics characterized by economic inequality and can help establish and strengthen civic institutions, among many possible interventions. But legal scholars evaluating and designing tax policies generally focus on the standard normative criteria of efficiency, equity, and administrability, with little specific regard for democratic concerns. This separation from democratic theory has left tax law scholars ill-equipped to respond to calls for help from more democracy-focused fields of law. Thus, tax scholarship mostly has not engaged with the increasingly important project of strengthening democratic governance.

This Article argues that democracy should be a more central consideration in designing and evaluating tax laws in a democratic system of government, exploring a set of democracy criteria that can bolster the standard normative criteria used to evaluate tax policy.

The democracy criteria considered here ask: does a change in tax rules strengthen or undermine democratic governance? This Article draws on democratic theory to identify pressure points where taxation might shape democracy, building on work by tax scholars who have tried to integrate democratic values into the standard criteria. I make the case that democratic considerations should not be subordinated to other criteria, but rather should stand on their own. I apply the democracy criteria to wealth tax proposals, showing how a democratic perspective illuminates a contemporary debate in U.S. tax policy.

Approached in this way, a democratic perspective on tax law and policy can facilitate tax responses—in scholarly discourse and in policy prescriptions—to current challenges facing democracies around the world, answering the calls of scholars in other fields who (appropriately) view tax rules as sites of important potential interventions to shore up democracy.

Today's Law, Society, And Taxation Panel

Today's Law, Society, and Taxation panel at the 2023 Law & Society Association Annual Meeting in San Juan, Puerto Rico:

Taxation of Labor and Business 

• Session Organizer: Neil Buchanan (Florida; Google Scholar) 
• Chair/Discussant: Orly Mazur (SMU; Google Scholar) 

The imposition of a tax has an impact on the social and economic responses of taxpayers, whether individuals or corporations. The papers in this session contemplate the effects of a variety of tax rules on the business decisions of workers and employers, and think through what improvements might be available as a matter of tax policy and tax design.

Mirit Eyal-Cohen (Alabama; Google Scholar), Taxing Innovation Inventiveness:

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The Welfare Effects Of Nudges Versus Taxes

John A. List (Chicago; Google Scholar), Matthias Rodemeier (Bocconi; Google Scholar), Sutanuka Roy (Australian National; Google Scholar) & Gregory Sun (Chicago), Judging Nudging: Understanding the Welfare Effects of Nudges Versus Taxes:

While behavioral non-price interventions (“nudges”) have grown from academic curiosity to a bona fide policy tool, their relative economic efficiency remains under-researched. We develop a unified framework to estimate welfare effects of both nudges and taxes. We showcase our approach by creating a database of more than 300 carefully hand-coded point estimates of nonprice and price interventions in the markets for cigarettes, influenza vaccinations, and household energy. While nudges are effective in changing behavior in all three markets, they are not necessarily the most efficient policy. 

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Kemker: When Gender-Affirming Healthcare Becomes Illegal, Will It (Still) Be Tax-Deductible?

Diane Kemker (Southern, DePaul), When Gender-Affirming Healthcare Becomes Illegal, Will It (Still) Be Tax-Deductible?:

In the absence of universal health care, which itself exacts a deadly toll on Americans, all too many people face unmanageable medical costs. Even those with insurance may find themselves with large, uninsured expenses. The Internal Revenue Code acknowledges these realities by permitting taxpayers to take a deduction for unusually large medical expenses incurred in a taxable year, whether for the taxpayer or their dependents. Although the statutory provision that creates this deduction does not condition deductibility on the legality of the medical treatment, the Regulations do.

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Avi-Yonah: Should U.S. Tax Law Be Constitutionalized? Centennial Reflections On Eisner v. Macomber (1920)

Reuven Avi-Yonah (Michigan; Google Scholar), Should U.S. Tax Law Be Constitutionalized? Centennial Reflections on Eisner v. Macomber (1920), 16 Duke J. Const. L. & Pub. Pol'y 65 (2021)

The United States Supreme Court last decided a federal income tax case on constitutional grounds in 1920—a century ago. The case was Eisner v. Macomber, and the issue was whether Congress had the power under the Sixteenth Amendment to include stock dividends in the tax base. The Court answered “no” because “income” in the Sixteenth Amendment meant “the gain derived from capital, from labor, or from both combined.” A stock dividend was not “income” because it did not increase the wealth of the shareholder.

Macomber was never formally overruled, and it is sometimes still cited by academics and practitioners for the proposition that the Constitution requires that income be “realized” to be subject to tax. 

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Shaviro Posts Two Tax Papers On SSRN

Daniel Shaviro (NYU; Google Scholar) has posted two tax papers on SSRN:

Time Is, Time Was: Evaluating the Use of the Life Cycle Model as a Fiscal Policy Tool:

What time periods should we use in tax and other fiscal policy to evaluate people’s circumstances, and thus to determine either how they are being treated, or how they ought to be? This question is both fundamental and pervasive.

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Avi-Yonah Posts Three International Tax Papers On SSRN

Reuven S. Avi-Yonah (Michigan; Google Scholar) has posted three international tax papers on SSRN:

Unitary Taxation After Pillar One:

Pillar One of the G20/OECD/IF BEPS 2.0 effort is unlikely to succeed for three reasons. First, it requires a multilateral tax convention (MTC) to be implemented because Amount A requires overriding Articles 5 (Permanent Establishment, PE), 7 (Business Profits) and 9 (Associated Enterprises) of every tax treaty to abolish the PE and Arm’s Length Principle (ALP) limits enshrined therein. 

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Lesson From The Tax Court: Substantiating Gambling Losses On Per-Casino Basis

The old saying “you win some, you lose some” is not true for most recreational gamblers.  For them, the saying is more like “you win some, you lose more.”  But proving that proves a problem.  In Jacob Bright v. Commissioner, Docket No. 10095-22 (May 4, 2023), Judge Buch teaches us how taxpayers can use their player cards to substantiate their wagering losses.  There, Mr. Bright reported some $241,000 of wagering gains on his 2019 return, and an equal amount of losses.  However, he apparently did not follow best practices—as very nicely explained in this article—of keeping daily contemporaneous records.  When audited, the IRS accepted his self-reported income (natch!) but disallowed all the losses for lack of substantiation (double natch!).

In Tax Court, Judge Buch allowed Mr. Bright to introduce reports of his player card activity, from each of the three Casinos he gambled at in 2019.  That created a sufficient basis for the Court to use the Cohan rule, albeit differently for each Casino.  The Court used this method to estimate $191,000 of losses.  In taking this approach for calculating wagering losses, Judge Buch gives us a new idea of “per session” netting worth considering, not only for proving up wagering losses, but also for calculating wagering gains.  I would call it a “per establishment” approach.  It makes a good bit of sense.  Details below the fold.

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Brooks Reviews Cui's Administrative Foundations Of The Chinese Fiscal State

Kim Brooks (Dalhousie University, Schulich School of Law; Google Scholar), Where Tax Law Canno Be Found, You Will Find a Robustly-Tasked Tax Administrator (JOTWELL) (reviewing Wei Cui (British Columbia; Google Scholar), The Administrative Foundations of the Chinese Fiscal State (Cambridge University Press (2022) (reviewed by David Elkins (Netanya; Google Scholar) here)):

The hard work that went into authoring The Administrative Foundations of the Chinese Fiscal State is palpable from the first page. Cui seeks to achieve two aims: (1) to tease out aspects of Chinese taxation of general interest to policy makers and social scientists in other countries (P. 3) and (2) to offer a new framework for understanding the policies and politics of taxation in China (P. 4). Both aims are accomplished handily.

Particularly fun for those of us who like tax administration, Cui claims that ground-level tax administration is essential to understanding the Chinese tax system. Focusing on tax administration, tax collection and revenue mobilization, allows Cui to show us something new about our own tax systems. He offers us the opportunity to see more clearly our own paradigmatic orientation: one that centres the importance of rule of law.

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Brunson: Tax Entity Status And Decentralized Autonomous Organizations

Samuel D. Brunson (Loyola-Chicago; Google Scholar), Standing on the Shoulders of LLCs: Tax Entity Status and Decentralized Autonomous Organizations, 57 Ga. L. Rev. 603 (2023):

Since the formation of the first decentralized autonomous organization in 2016, their use has exploded. Thousands of DAOs now try to take advantage of smart contracts to solve a problem that plagues business entities: the gulf between ownership and management. Armed with smart contracts and requiring token-holders to vote on any change in strategy, DAOs dispense with the management layer so necessary in traditional business entities.

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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. [483 Downloads]  GILTI and the GloBE, by Heydon Wardell-Burrus (Oxford)
2. [405 Downloads]  Does the 'Initial Phase Relief' Make the EU’s Pillar Two Directive Invalid?, by Georg Kofler (Vienna University of Economics and Business; Google Scholar) & Arne Schnitger (Free University of Berlin)
3. [300 Downloads]  Taxation of Information and the Data Revolution, by Yariv Brauner (Florida; Google Scholar)
4. [229 Downloads]  The Employment Effects of Tax Subsidies for the Construction of Amazon Facilities, by Ike Brannon (Jack Kemp Foundation) & Matthew Winden (University of Wisconsin (Whitewater); Google Scholar)
5. [219 Downloads]  Capital Taxation and Market Power, by Kimberly Clausing (UCLA; Google Scholar),

Innovation Funding And The Valley Of Death

Lital Helman (Ono Academic College), Innovation Funding and the Valley of Death, 76 S.M.U. L. Rev. __ (2023):

Innovation is a public good. As with other public goods, it is expected to be under-produced if only private incentives are present. Therefore, the law strives to encourage innovation via an array of stimuli mechanisms. The law offers three main such mechanisms: intellectual property (IP), cash transfers—mainly prizes and grants, and tax incentives.

Vast literature analyzes and compares these innovation stimuli in search for the optimal mix to boost innovation. Yet a key problem is largely overlooked: taken together, the existing stimuli do not cover the lion’s share of the innovation lifecycle. At the beginning of the innovation process, companies can win grants or prizes to cover research & development (R&D) expenses. When the company is already selling, it can enjoy IP payoffs and tax credits. In between, no targeted stimuli exist. This is an incongruity, because most innovative endeavors struggle neither in the R&D phase nor at the sales stage. In particular, for startups in the high-tech sector, it is precisely the phases between R&D and sales that prove fatal. This phenomenon is so well-known that the market has created a nickname for it—“the valley of death.”

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews A Critical Evaluation Of The Qualified Small Business Stock Exclusion By Polsky & Yale

This week, Sloan Speck (Colorado; Google Scholar) reviews a new work by Gregg D. Polsky (Georgia; Google Scholar) & Ethan Yale (Virginia; Google Scholar), A Critical Evaluation of the Qualified Small Business Stock Exclusion, 42 Va. Tax Rev. 353 (2023).

After 2017’s Tax Cuts and Jobs Act, some commentators predicted a renaissance in taxpayers’ use of the statutory exclusion for gain from qualified small business stock under § 1202. In 2015, Congress made permanent the provision’s 100 percent exclusion that emerged in the wake of the Great Recession, and the TCJA’s fourteen-point reduction in corporate rates heralded new benefits to bucking longstanding conventional wisdom that taxpayers should operate nonpublic companies as passthroughs. These predictions didn’t really come to pass, as Polsky and Yale observe in their magisterial exegesis of § 1202, A Critical Evaluation of the Qualified Small Business Stock Exclusion. 

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The Inflation Reduction Act's Impact On Tax Compliance—And Fiscal Sustainability

Natasha Sarin (Yale; Google Scholar; Former Counselor on Tax Policy, U.S. Treasury Department) & Mark J. Mazur (Former Assistant Secretary for Tax Policy, U.S. Treasury Department), The Inflation Reduction Act's Impact on Tax Compliance—and Fiscal Sustainability:

The Inflation Reduction Act (IRA) includes a once-in-a-generation investment in the Internal Revenue Service (IRS) to modernize America’s tax administration and, by doing so, meaningfully increase compliance with the nation’s tax laws. We consider the impact of this investment on new tax revenue that the agency will be able to collect. Our rough estimate suggests that IRS funding will raise at least $560 billion ($480 billion, net) over the course of the next ten years—and, depending on the extent of taxpayer’s behavioral response to greater enforcement presence, could easily raise closer to $1 trillion. This is much larger than official government estimates.

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Clausing: The International Tax Agreement Of 2021—Why It's Needed, What It Does, And What Comes Next?

Kimberly A. Clausing (UCLA; Google Scholar), The International Tax Agreement of 2021: Why It's Needed, What it Does, and What Comes Next?:

In 2021, more than 135 jurisdictions agreed on transformative new international tax rules that would establish a minimum tax rate of 15 percent on multinational corporate income regardless of where it was reported. In December 2022, the European Union unanimously moved forward to implement this minimum tax, and other countries, including South Korea, Japan, Australia, Canada, and the United Kingdom, are also either implementing the tax or taking substantial steps toward implementation.

In tandem, the United States should also reform its international tax system and adopt a stronger minimum tax. While the future of the international agreement is uncertain, it has important implications for the ability of governments worldwide to create tax systems that are administrable, fair, and efficient.

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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 May 1, 2023) 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)	220,463	1	Jonathan Choi (Minnesota)	13,150
2	Daniel Hemel (NYU)	129,887	2	Reuven Avi-Yonah (Michigan)	11,859
3	Dan Shaviro (NYU)	126,539	3	Kristin Hickman (Minnesota)	10,601
4	Lily Batchelder (NYU)	126,365	4	Amy Monahan (Minnesota)	9,666
5	David Gamage (Indiana-Maurer)	124,060	5	Daniel Hemel (NYU)	4,465
6	Darien Shanske (UC-Davis)	117,196	6	Bridget Crawford (Pace)	4,090
7	David Kamin (NYU)	113,586	7	Ruth Mason (Virginia)	3,333
8	Cliff Fleming (BYU)	107,956	8	Margaret Ryznar (Indiana-McKinney)	3,073
9	Manoj Viswanathan (UC-San Francisco)	104,514	9	Louis Kaplow (Harvard)	3,034
10	Ari Glogower (Northwestern)	103,801	10	Robert Sitkoff (Harvard)	3,014
11	Rebecca Kysar (Fordham)	103,614	11	D. Dharmapala (Chicago)	2,892
12	D. Dharmapala (Chicago)	50,137	12	Kyle Rozema (Washington University)	2,870
13	Michael Simkovic (USC)	47,611	13	Richard Ainsworth (Boston University)	2,545
14	Paul Caron (Pepperdine)	40,941	14	Darien Shanske (UC-Davis)	2,544
15	Louis Kaplow (Harvard)	39,839	15	David Gamage (Indiana-Maurer)	2,441
16	Richard Ainsworth (Boston University)	37,513	16	Kim Clausing (UCLA)	2,427
17	Bridget Crawford (Pace)	35,907	17	Brad Borden (Brooklyn)	2,266
18	Robert Sitkoff (Harvard)	31,977	18	Zachary Liscow (Yale)	2,260
19	Brad Borden (Brooklyn)	30,229	19	Dan Shaviro (NYU)	2,065
20	Vic Fleischer (UC-Irvine)	29,751	20	Young Ran (Christine) Kim (Cardozo)	2,044
21	Ruth Mason (Virginia)	29,608	21	Lily Batchelder (NYU)	2,017
22	Ed Kleinbard (USC)	29,359	22	Richard Kaplan (Illinois)	1,887
23	Jim Hines (Michigan)	27,844	23	Brian Galle (Georgetown)	1,780
24	Richard Kaplan (Illinois)	27,059	24	Victoria Haneman (Creighton)	1,727
25	Katie Pratt (Loyola-L.A.)	26,221	25	David Kamin (NYU)	1,670

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Conference For Tax Profs Tenured 1-15 Years At San Diego

San Diego hosted a combined AMT (Association of Mid-Level Tax Scholars Conference, for those tenured for 1-10 years) and EITC (Experienced in Tax Conference, for those tenured for 11-15 years) earlier this week:

Panel #1:

Ari Glogower (Ohio State; Google Scholar), Restoring Substance to the Taxing Power
Discussant: Omri Marian (UC-Irvine; Google Scholar)

Jake Brooks (Fordham; Google Scholar), The Constitutional Meaning of “Income”: Moore v. United States and the Movement to Revive Eisner v. Macomber
Discussant: Michael Doran (Virginia; Google Scholar)

Brian Galle (Georgetown; Google Scholar), Unreserved: Central Banks Have Powerful New Tools for Controlling the Economy but They’re Still Playing by the Old Rules
Discussant: Steven Dean (Brooklyn)

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Tax Papers At Junior Faculty Forum At Richmond

Tax presentations at this week's Junior Faculty Forum at Richmond (program):

Assaf Harpaz (Drexel; Google Scholar), International Tax Reform: Challenges to Multilateral Cooperation, 44 U. Pa. J. Int'l L. __ (2023):

In 2021, the OECD proposed new rules for the cross-border taxation of multinational corporations. The proposed rules set forth the most significant reform to international tax rules in several decades. They follow approximately a decade of multilateral negotiation led by the OECD and drafted by a broader Inclusive Framework of over 140 countries. The goal of this Article is to highlight the importance of multilateral cooperation and illuminate the obstacles to implementing international tax reform. It argues that the new international tax framework requires unprecedented multilateral cooperation to reallocate taxing rights and limit profit shifting. But such ambitious cooperation may be more than countries can accomplish. The new rules are largely an outcome of political compromises rather than a principled approach to tax policy. They infringe on tax sovereignty, limit tax competition, and undermine the economic interests of the world’s developing countries.

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Discourses In The Tampon Tax Campaign

Shu-Chien Chen (Erasmus), Discourses in the Tampon Tax Campaign, 17 Analize: J. Gender & Feminist Stud. 114 (2022):

The Tampon Tax Campaign is a global social movement that aims to abolish consumption tax on menstruation hygienic products and provide free universal access to them as the ultimate goal. In the campaign, there are different discourses supporting abolishing the tampon tax and discourses casting doubts on the campaign. Discourses supporting the campaign center around breaking the menstruation taboo, including eradicating menstruation poverty, ensuring menstruation health, pursuing human rights, and ending tax discrimination. Doubt-casting discourses include the revenue reduction and economics inefficiency in the market after abolishing tax on menstruation hygienic products. These doubt-casting discourses talk about money. I will use Foucault’s discourse analysis approach, not only to analyze discussions from scholars, but also to compare legislation records of Australia, California and Scotland between 2017 and 2020 that are in response to the tampon tax campaign. 

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Taxing Creativity

Xuan-Thao Nguyen (Washington) & Jeffrey A. Maine (Maine), Taxing Creativity, 89 Tenn. L. Rev. 523 (2022):

The recent sell offs of song catalogs by Bob Dylan, Stevie Nicks, Neil Young, and Mick Fleetwood for extraordinarily large sums of money raise questions about the law on creativity. While patent and copyright laws encourage a wide array of creative endeavors, tax laws governing monetization of creative works do not. 

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Roberts: A Man For His Era And For Ours—Cordell Hull, Father Of The Federal Income Tax

Tracey M. Roberts (Cumberland; Google Scholar), A Man for His Era and for Ours: Cordell Hull, Father of the Federal Income Tax, 53 Cumb. L. Rev. __ (2023):

An 1891 graduate of Cumberland School of Law, Cordell Hull served our country in countless ways. He worked as captain of the Fourth Regiment of the Tennessee Volunteer Infantry in the Spanish-American War, as judge for the fifth judicial circuit of Tennessee, as state representative in the Tennessee House of Representatives, as a member of the United States House of Representatives, as a member of the United States Senate, and as United States Secretary of State. President Franklin D. Roosevelt referred to him as the “Father of the United Nations.” Hull subsequently received the Nobel Peace Prize in 1945 in honor of his work to establish that body. Hull is less well known for his work to establish another important and enduring institution—the federal income tax.

In his 1948 memoir, Hull wrote that he doubted that he would be able to render public service equal to his work to establish the income tax system even if he had two lifetimes. This essay explains why Hull regarded the federal income tax as among his chief contributions. First, it outlines Hull’s personal history, his experiences with his mentor, United States Representative Benton McMillin, and Hull’s efforts to pass the Revenue Act of 1913. Second, it discusses the historical, economic, and political context that motivated Hull to introduce the tax reform that not only sustained the United States through the two world wars that followed but made possible widespread economic prosperity in the twentieth century.

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Betwixt And Between: A Tax Lawyer’s Dual Responsibility

Rashaud J. Hannah (J.D. 2024), Note, Betwixt and Between: A Tax Lawyer's Dual Responsibility, 34 Geo. J. Legal Ethics 991 (2021): 

Lawyers are expected to zealously advocate for their clients in balance with their “honest dealings with others.” In exploring how tax lawyers may be well positioned to bridge the ideological divide between the U.S. government and corporations, this Note presents several perspectives. It identifies some of the relevant Model Rules, provides a brief history of the corporate tax and the federal income tax more generally, flags crisis as a recurring phenomenon and considered the U.S. government response, reviews literature on tax avoidance, and considers some cooperative strategies and feasible alternatives to the corporate tax policy status quo between the U.S. government and corporations. 

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Avi-Yonah & Edrey: Constitutional Review Of Federal Tax Legislation

Reuven S. Avi-Yonah (Michigan; Google Scholar) & Yoseph M. Edrey (Haifa University), Constitutional Review of Federal Tax Legislation, 2023 U. Ill. L. Rev. 1: 

What does the Constitution mean when it says that “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States” (U.S. Const. Article I, Section 8, Clause 1)?

The definition of “tax” for constitutional purposes has become important considering the Supreme Court’s 2012 decision in National Federation of Independent Business v. Sebelius (“NFIB”), in which Chief Justice Roberts for the Court upheld the constitutionality of the individual mandate of the Patient Protection and Affordable Care Act (“ACA”) under the taxing power. This holding has resulted in commentators questioning the utility of Roberts’s distinction between a “tax,” where Congress’s power is nearly unlimited, and a “regulation,” where Congress’s power under the Commerce Clause is limited.

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Lesson From The Tax Court: On Time Is Late

In law, even more than in comedy, timing can be critical.  In comedy you just lose a laugh.  In law, you lose a case.  In Roy A. Nutt and Bonnie W. Nutt v. Commissioner, 160 T.C. No. 10 (May 2, 2023) (Judge Buch), we learn why a petition seemingly submitted on time will be rejected as late.  There, the Nutts electronically submitted their Petition to the Tax Court on the last day they could file.  Now we all know you really don't want to ever do that.  But sometimes it just happens.  And the last day to file is just as timely as the first day to file.  The Nutts submitted their Petition at 11:05 p.m.  So they seemed to be on time.

The problem was that they were filing from Alabama (Central Time) and the Tax Court’s Clerk’s office is in Washington D.C. (Eastern Time).  Thus, even though they submitted on time, Judge Buch holds that their Petition was filed late, because 11:05 p.m. in Alabama was five minutes after midnight in Washington D.C.  Thus, sticking to its increasingly archaic view that the timing rules for filing a Petition are jurisdictional, the Tax Court dismissed the Petition.

Note this is another precedential opinion issued in a case with unrepresented taxpayers.  Here, the IRS moved to dismiss and briefed the issue, but there was no responding brief to counter the government’s view.  These pro-se taxpayers probably did not know about all the Tax Court precedent applying equitable principles to rescue seemingly late-filed petitions.  I give a close review of those cases in Bryan Camp, Equitable Doctrines and Jurisdictional Time Periods, Part 2, 159 Tax Notes 1581 (June 11, 2018).

To his great credit, Judge Buch has, in a similar case, asked for amicus briefs on the issue.  I hope the Tax Court there comes to a different conclusion.  It’s always a balancing act: weighing the need for taxpayer access to judicial review with the need to obey statutory limits. Perhaps the Tax Court might reconsider how that balance should work for electronically filed documents.  However, as Professor Book puts it in this post over at Procedurally Taxing, after this case taxpayers now have a steeper hill to climb. You will find the sad details below the fold, along with my modest thoughts on how to strike a better balance. 

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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 #1 paper and a new paper debuting on the list at #4:

1. [470 Downloads]  GILTI and the GloBE, by Heydon Wardell-Burrus (Oxford)
2. [396 Downloads]  Does the 'Initial Phase Relief' Make the EU’s Pillar Two Directive Invalid?, by Georg Kofler (Vienna University of Economics and Business; Google Scholar) & Arne Schnitger (Free University of Berlin)
3. [293 Downloads]  Taxation of Information and the Data Revolution, by Yariv Brauner (Florida; Google Scholar)
4. [220 Downloads]  The Employment Effects of Tax Subsidies for the Construction of Amazon Facilities, by Ike Brannon (Jack Kemp Foundation) & Matthew Winden (University of Wisconsin (Whitewater); Google Scholar)
5. [202 Downloads]  Capital Taxation and Market Power, by Kimberly Clausing (UCLA; Google Scholar),

The Borrower's Dilemma And A Tax-Based Solution To The Student Debt Problem

Kate Souza (J.D. 2022, UC-San Francisco), Note, How Can I Ever Repay You? The Borrower’s Dilemma and a Tax-Based Solution to the Student Debt Problem, 73 Hastings L.J. 129 (2022):

The growing cost of higher education relative to wage growth means that college is no longer the sure path to financial security it once was. While the cost of tuition ballooned over the past several decades, government funding for higher education diminished. Students have made up the difference by borrowing more. For many borrowers, large student loans result in unmanageable debt that makes their financial futures less secure. Student debt also harms society and the economy. If the government wants Americans to continue to have access to higher education, it must find ways to make higher education more affordable

Politicians recognize the problems posed by the current historic levels of student loan debt. They recently proposed to cancel large swaths of student loan debt. However, debt cancellation is not a good solution. It is expensive, unfair, and offers mere temporary relief from a problem that will continue to plague future borrowers. A better solution would offer lasting relief

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Weekly SSRN Tax Article Review And Roundup: Saito Reviews Automated Agencies By Blank & Osofsky

This week, Blaine Saito (Northeastern; Google Scholar) reviews a new work by Joshua D. Blank (UC-Irvine; Google Scholar) & Leigh Osofsky (North Carolina; Google Scholar), Automated Agencies, 107 Minn. L. Rev. 2114 (2023). 

A lot of the news these days are around the rise of AI like ChatGPT. But already, we have weaker forms of virtual assistants. These days, I can often “chat” with an airline’s chatbot when my flight is delayed. Federal agencies, like the IRS, have implemented similar tools to present people with user friendly answers to their questions. But in their new article, Automated Agencies, 104 Minn. L. Rev. 2115 (2023), Joshua D. Blank and Leigh Osofsky raise some concerns. Building on their work on Simplexity, a term the authors coined for government pronouncements to the general public that tend to oversimplify the actual underlying complicated and nuanced law, they note that automated legal guidance tools may actually exacerbate the problems of Simplexity to a frightening extent. And often agency officials are unaware of these problems.

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Narotzki Posts Five Tax Papers On SSRN

Doron Narotzki (Akron; Google Scholar) has posted five tax papers on SSRN:

Tax Implications of Contributing Appreciated Property Overseas, 179 Tax Notes Fed. 431 (April 17, 2023) (with Tamir Shanan (College of Management)): 

In this article, Narotzki and Shanan examine the application of section 367 to section 351 exchanges and the income inclusion issues that may arise upon a U.S. person’s contribution of property to a foreign entity. 

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Hemel Presents The Realization Doctrine And The Optimal Taxation Of Capital Income Today At The OMG Transatlantic Tax Talks

Daniel Hemel (NYU; Google Scholar) presents The Realization Doctrine and the Optimal Taxation of Capital Income (with Dhammika Dharmapala (Chicago; Google Scholar)) at the OMG Transatlantic Tax Talks Series (OMG = Oxford-Michigan-MIT-Munich-Georgetown) today: 

The realization requirement—a common feature of real-world capital income tax systems—defers the taxation of gains until the sale or other disposition of assets. As implemented, it generally imposes effective capital income tax rates that decline over a taxpayer’s holding period. Scholars of tax law and public finance have long appreciated that the realization requirement generates a deferral benefit and an associated allocative inefficiency (the “lock-in effect”). However, they have largely overlooked the relationship between realization and the optimal taxation of capital over the lifecycle. In this paper, we connect the realization requirement to canonical results in the optimal tax literature—in particular, the Atkinson-Stiglitz argument for the nontaxation of retirement savings and the Diamond-Mirrlees argument for high tax rates on savings withdrawn in midlife. First, we reconcile these results in a simple three-period framework with stochastic skill shocks in the middle period, demonstrating that the optimal tax rate on savings withdrawn in the middle period is high while the optimal tax rate on savings withdrawn in the final period is zero. We next show how the realization requirement partially implements the optimal age-dependent capital income tax schedule. 

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Foster: Reckoning With Tax Risk

William E. Foster (Arkansas; Google Scholar), Reckoning with Tax Risk, 42 Va. Tax Rev. 473 (2023):

Whether a business is engaging in a major transaction or simply conducting day-to-day operations, it must address tax questions and take positions based on available authority and its appetite for risk. With enough research, most tax questions are answerable at a high level of comfort, but many are not. This article looks at how businesses deal with the latter scenario. 

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Blank & Osofsky: Automated Agencies

Joshua D. Blank (UC-Irvine; Google Scholar) & Leigh Osofsky (North Carolina; Google Scholar), Automated Agencies, 107 Minn. L. Rev. 2114 (2023):

When individuals have questions about federal benefits, services, and legal rules, they increasingly seek help from government chatbots, virtual assistants, and other automated tools. Most scholars who have studied artificial intelligence and federal government agencies have not focused on the government’s use of technology to offer guidance to the public. The absence of scholarly attention to automation as a means of communicating government guidance is an important gap in the literature. Through the use of automated legal guidance, the federal government is responding to millions of public inquiries each year about the law, a number that may multiply many times over in years to come. This new form of guidance is thereby shaping public views of and behavior with respect to the law, without serious examination.

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Cui: The Mirage Of Mobile Capital

Wei Cui (British Columbia; Google Scholar), The Mirage of Mobile Capital:

Capital mobility has preoccupied scholars of international taxation for more than 30 years. According to prevailing narratives, when capital is highly mobile, countries compete to attract investment, creating a race to the bottom; capital mobility also enables multinational enterprises (MNEs) to shift profits. The appeal of these narratives has culminated in the OECD’s proposed Global Minimum Tax, which declares the aim of substantially curtailing tax competition. This paper suggests, however, that the significance of mobile capital for international taxation may be largely an illusion.

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Polsky & Yale: A Critical Evaluation Of The Qualified Small Business Stock Exclusion

Gregg D. Polsky (Georgia; Google Scholar) & Ethan Yale (Virginia; Google Scholar), A Critical Evaluation of the Qualified Small Business Stock Exclusion, 42 Va. Tax Rev. 353 (2023):

Section 1202 of the Internal Revenue Code grants a gain exclusion to certain shareholders who own "qualified small business stock." We describe the tortured history of this rule, explain how it works (and fails to work), and critically evaluate whether the rule serves any coherent policy objective. If Congress keeps the rule in place, significant revisions are necessary to align the rule with sound policy and tamp out the abusive manipulations arguably permitted by the law in its present form. We propose several improvements along these lines. We also make the case for eliminating the exclusion in its entirety.

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Soled & Thomas: AI, Taxation, And Valuation

Jay A. Soled (Rutgers; Google Scholar) & Kathleen DeLaney Thomas (North Carolina; Google Scholar), AI, Taxation, and Valuation, 108 Iowa L. Rev. 651 (2023) (reviewed by Mirit Eyal-Cohen (Alabama; Google Scholar) here):

Virtually every tax system relies upon accurate asset valuations. In some cases, this is an easy identification exercise, and the exact fair market value of an asset is readily ascertainable. Often, however, the reverse is true, and ascertaining an asset’s fair market value yields, at best, a numerical range of possible outcomes. Taxpayers commonly capitalize upon this uncertainty in their reporting practices, such that tax compliance lags and the IRS has a difficult time fulfilling its oversight responsibilities. As a by-product of this dynamic, the Treasury suffers.

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NY Times: IRS Admits Black Americans Face More Audit Scrutiny

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

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

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

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

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Dharmapala: The Characteristics Of Tax Havens

Dhammika Dharmapala (Chicago; Google Scholar), Overview of the Characteristics of Tax Havens:

Tax havens have become a subject of great interest among policymakers, scholars and the general public, and are central to many important current policy debates. This chapter provides an overview of the scholarly literature on the characteristics and origins of tax havens. The earlier literature used cross-country analysis and found evidence that tax havens tend to have stronger governance institutions than comparable nonhaven countries. The more recent literature analyzes the historical origins of tax havens and undertakes longitudinal analysis of their adoption of haven-like laws. 

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Kim & Shanske: State Digital Services Taxes—A Good And Permissible Idea

Young Ran (Christine) Kim (Cardozo; Google Scholar) & Darien Shanske (UC-Davis; Google Scholar), State Digital Services Taxes: A Good and Permissible Idea (Despite What You Might Have Heard), 98 Notre Dame L. Rev. 741 (2022):

Tax systems have been struggling to adapt to the digitalization of the economy. At the center of the struggles is taxing digital platforms, such as Google or Facebook. These immensely profitable firms have a business model that gives away "free" services, such as searching the web. The service is not really free; it is paid for by having the users watch ads and tender data. Traditional tax systems are not designed to tax such barter transactions, leaving a gap in taxation.

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Lesson From The Tax Court: Allocating Between Excludable Child Support and Includable Interest

As inflation rises so does interest in interest.  Certainly when my 1-year CD matures next month I will be looking for a rate better than the 2% rate that seemed so great last year!  If I get a 4.5% I will be happy ... but who knows what my dollars will be worth next year?

And that’s how we typically think of interest: it’s all about inflation, the old idea that “dollars tomorrow will be worth less than dollars today.”  But the concept of “interest” is a bit more nuanced than just being compensation for the diminished value of dollars in the future.  It is also a compensation for risk: the risk that the money will not in fact be repaid—think junk bonds.  And interest also compensates for opportunity costs: a lender is giving up the ability to use (consume or invest) that money now.  In short, interest is compensation for multiple consequences of the use or forbearance of money, similar to how rent is compensation for several different sticks of property rights given up by the lessor.

It is for these reasons that interest has always been taxed as a separate item of income, separate and apart from the underlying loan or deferred payment.  We see that lesson again today in Susan D. Rodgers v. Commissioner, T.C. Memo. 2023-56 (May 9, 2023) (Judge Gale), where the taxpayer received periodic payments from the State of Alabama in 2015 that it had collected from her ex-spouse to satisfy a court judgment for child support arrearages, plus interest.  She treated all the payments as excludable child support despite receiving a 1099-INT from Alabama that treated all the payments as interest on the arrearages.

Thus this case also presents a lesson in allocation.  How should a taxpayer decide how much of a given payment represents taxable interest or non-taxable child support?  And on that issue, dear readers, I think the Tax Court may have been misled by the State of Alabama into ignoring federal law to find that all of each payment was interest.  Details below the fold.

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The Top Five New Tax Papers

There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #5:

1. [683 Downloads]  Carried Too Far? A Challenge to the Tax Treatment of Carried Interest in the Private Equity Industry, by Dan Neidle (Tax Policy Associates)
2. [458 Downloads]  GILTI and the GloBE, by Heydon Wardell-Burrus (Oxford)
3. [385 Downloads]  Does the 'Initial Phase Relief' Make the EU’s Pillar Two Directive Invalid?, by Georg Kofler (Vienna University of Economics and Business; Google Scholar) & Arne Schnitger (Free University of Berlin)
4. [268 Downloads]  Taxation of Information and the Data Revolution, by Yariv Brauner (Florida; Google Scholar)
5. [181 Downloads]  Capital Taxation and Market Power, by Kimberly Clausing (UCLA; Google Scholar),

Weekly SSRN Tax Article Review And Roundup: Layser Reviews Predictive Analytics And The Tax Code By Soled & Thomas

This week, Michelle Layser (San Diego) reviews Jay A. Soled (Rutgers; Google Scholar) and Kathleen DeLaney Thomas (UNC; Google Scholar), Predictive Analytics and the Tax Code, 51 Fla. St. U. L. Rev. __ (2023).

I am obsessed with ChatGPT. If you haven’t seen it yet, I suggest that you finish grading and then go check it out (in that order). It is at once fascinating and terrifying, and it leaves little doubt that the artificial intelligence (AI) tools of the future will dramatically impact most aspects of the legal profession. And the future may not be so far off. In a forthcoming article, Professors Jay A. Soled and Kathleen DeLaney Thomas argue that today’s predictive analytics tools are already capable of fundamentally changing the application of the tax code’s civil tax penalty regime.

To demonstrate how, the authors begin with a review of current theory about taxpayer compliance and the civil tax penalty regime. 

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Next Week’s Tax Workshop

Thursday, May 18: Daniel Hemel (NYU; Google Scholar) will present The Realization Doctrine and the Optimal Taxation of Capital Income (with Dhammika Dharmapala (Chicago; Google Scholar)) as part of the OMG Transatlantic Tax Talks:

The realization requirement—a common feature of real-world capital income tax systems—defers the taxation of gains until the sale or other disposition of assets. As implemented, it generally imposes effective capital income tax rates that decline over a taxpayer’s holding period. Scholars of tax law and public finance have long appreciated that the realization requirement generates a deferral benefit and an associated allocative inefficiency (the “lock-in effect”). However, they have largely overlooked the relationship between realization and the optimal taxation of capital over the lifecycle. In this paper, we connect the realization requirement to canonical results in the optimal tax literature—in particular, the Atkinson-Stiglitz argument for the nontaxation of retirement savings and the Diamond-Mirrlees argument for high tax rates on savings withdrawn in midlife.

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