TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, April 10, 2019

Kleinbard: The House Has The Clear Legal Authority To Access Trump's Tax Returns

Trump Tax ReturnsLos Angeles Times op-ed:  The Law Is Clear on Disclosing Trump’s Tax Returns to the House Ways and Means Committee, by Edward Kleinbard (USC):

The battle for access to President Trump’s tax returns has officially been joined. Richard Neal (D-Mass.), chairman of the House Ways and Means Committee, has requested from the IRS commissioner six years of tax returns for Trump and eight of his companies. The deadline for responding is Wednesday.

Trump’s advisors have made it clear that the request will be denied. Acting Chief of Staff Mick Mulvaney said that the tax returns will “never” be turned over. The ensuing struggle could lead to a novel and dangerous constitutional crisis. 

The relevant law here is neither obscure nor unclear. If most citizens were previously unaware of tax code section 6103, that’s because they’ve not been in a position to invoke it. But for those to whom it is relevant — law enforcement agencies, state tax authorities, committees of Congress, and others — it is straightforward.

The statute permits the chairman of the House Ways and Means Committee to request any tax return, provided — and this is important — he ensures the privacy of the return. The entire committee, for example, can access a return only when meeting in private (“executive”) session. An unauthorized public release is a felony. Chairman Neal is not looking to collect the Trump tax returns simply so he can publish them on the committee’s website.

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April 10, 2019 in Tax | Permalink | Comments (10)

Tuesday, April 9, 2019

Bank Presents Manufacturing Tax Populism Today At NYU

Bank (2016)Steven Bank (UCLA) presents Manufacturing Tax Populism: Revisiting the 1962 Campaign Against Dividend and Interest Withholding at NYU today as part of its Tax Policy Colloquium Series hosted by Lily Batchelder and Daniel Shaviro:

This paper, part of a broader book project on tax avoidance and evasion in the middle of the twentieth century, explores President John F. Kennedy’s proposal in 1962 to require withholding for taxes on dividends and interest. Kennedy was concerned about the shortfall between dividends and interest paid and reported, which had grown to about $3.3 billion. By extending the withholding requirement, Kennedy hoped to close what was considered one of the “major tax-escape routes for the upper-income brackets.”

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April 9, 2019 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Gordon Presents Fiscal Democracy In The States: How Much Spending Is On Autopilot? Today At Georgetown

GordonTracy Gordon (Tax Policy Center) presents Fiscal Democracy in the States: How Much Spending is on Autopilot? at Georgetown today as part of its Tax Law and Public Finance Workshop Series hosted by John Brooks and Lilian Faulhaber:

State governors and lawmakers frequently complain about Medicaid, pensions, and debt service crowding out other budget priorities. Academic researchers, credit rating agencies, and journalists have also taken note of this phenomenon. However, few analysts have sought to define state budget pre-commitments more broadly and measure how past choices may be constraining current decisions.

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April 9, 2019 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Pratt Presents Making Tax Expenditures Work Today At San Diego

Pratt (2017)Katherine Pratt (Loyola-L.A.) presents Making Tax Expenditures Work at San Diego today as part of its Tax Law Speakers Series hosted by Jordan Barry and Miranda Perry Fleischer:

Federal Tax Expenditure reform is needed now more than ever. Repeated attempts to reform Tax Expenditures have accomplished little, however, in the last three decades. Enacting a federal partial-replacement Value Added Tax (VAT), such as the Graetz Competitive Tax Plan, could provide a catalyst for Tax Expenditure reform. The Tax Expenditure literature, including the literature on the institutional design of Tax Expenditures, assumes mass filing of federal income tax returns. The elimination of 120 million Form 1040s upends this background assumption and prompts reconsideration of the institutional design of Tax Expenditures.

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April 9, 2019 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Winners Of The 2019 National Tax Moot Court Competition

Florida Bar, 2019 National Tax Moot Court Competition Winners:

LibertyWinner: Liberty [right]
William Baker, John Riordan, Jonathan Shbeeb
Coach: Tim Todd

1st Runner-Up: Stetson 
Deanna Cipriano, Romina Drazhi, Mark Joseph
Coach: Katie Everlove-Stone

2nd Runner-Up: Baltimore
Brenton Conrad, Dara Polokoff
Coach: Fred Brown

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April 9, 2019 in Legal Education, Tax, Teaching | Permalink | Comments (0)

Abramowicz & Blair-Stanek: Contractual Tax Reform

Michael Abramowicz (George Washington) & Andrew Blair-Stanek (Maryland), Contractual Tax Reform, 61 Wm. & Mary L. Rev. ___ (2019):

One-size-fits-all taxation fails to accommodate diverse taxpayer circumstances. This Article proposes allowing taxpayers to contract into alternative tax regimes administered by private intermediaries. Participating taxpayers would make payments to the intermediaries pursuant to contract, and the intermediaries would be required to pay to the government at least as much as these taxpayers would have paid the government otherwise. That amount is determined based on the actual tax receipts of a control group, taxpayers who wish to contract with an intermediary but instead are chosen at random to continue under the status quo. These alternative tax regimes might better accommodate taxpayers’ preferences, leaving the taxpayers with greater utility, without reducing government revenue.

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April 9, 2019 in Scholarship, Tax | Permalink | Comments (0)

Stop Comparing Your Startup To TurboTax

TurboTaxABA Journal, Stop Comparing Your Startup to TurboTax:

In January, I was preparing for an interview with Jonathan Petts, executive director of Upsolve, a legal tech nonprofit that helps people navigate Chapter 7 bankruptcy.

During my background research, I was reading an article about the firm’s software, and that’s when I saw it: a variant of my legal tech trigger phrase.

is like “TurboTax for bankruptcy,” the piece explained.

I cringed when I read it. My heart rate spiked, and my eyes rolled into the back of my head. I despise the phrase “TurboTax for X.”

It’s a common refrain in the legal tech space—and tech generally. Companies and nonprofits looking to improve upon a common but complex legal or financial system through a simple, glossy user interface often rely on comparing their product to the wildly successful tax preparation software. Tech entrepreneurs have used the TurboTax analogy to describe their apps that help with expungement and employment law—and those are just my sins—among many other subjects.

While people often see TurboTax as a successful software company that makes tax filing easier, the reality is that TurboTax is not worthy of its vaunted rhetorical role. It’s a rent seeker that actively lobbies to keep the tax system complex, justifying its ongoing existence and profits. ...

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April 9, 2019 in Tax | Permalink | Comments (0)

Hemel: Fact And Fiction On Trump’s Tax Returns — What Trump’s Lawyer’s Letter Gets Right ( And Wrong)

Daniel Hemel (Chicago), Fact and Fiction on Trump’s Tax Returns: What Trump’s Lawyer’s Letter Gets Right — And Wrong:

President Trump’s personal attorney, William Consovoy, sent a letter to the Treasury Department’s general counsel on Friday arguing that House Ways and Means Chairman Richard Neal “cannot legally request — and the IRS cannot legally divulge” — the president’s tax returns. The letter gets a couple of things right and other things very wrong.

First, Consovoy is correct that 26 U.S.C. § 6103(f), the once-obscure 1924 statute that everyone is now talking about, does not resolve the present controversy. ... As Andy Grewal and others have (rightly) noted, § 6103(f) cannot extend any further than Congress’s legislative power. ...

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April 9, 2019 in Tax | Permalink | Comments (1)

Monday, April 8, 2019

Kysar Presents Unravelling The Tax Treaty Today At Pepperdine

Kysar (2018)Rebecca Kysar (Fordham) presents Unravelling the Tax Treaty at Pepperdine today as part of our Tax Policy Workshop Series hosted by Dorothy Brown and Paul Caron and funded in part by a generous gift from Scott Racine:

Coordination among nations over the taxation of international transactions rests on a network of some 2,000 bilateral double tax treaties. The double tax treaty is, in many ways, the roots of the international system of taxation. That system, however, is in upheaval in the face of globalization, technological advances, taxpayer abuse, and shifting political tides. In the academic literature, however, scrutiny of tax treaties is largely confined to the albeit important question of whether tax treaties are beneficial for developing countries. Surprisingly little consideration has been paid to whether developed countries, like the United States, should continue to sign tax treaties with one another, and no formal revenue or economic analyses of the treaties has been undertaken by the United States government. 

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April 8, 2019 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

WSJ: The $26 Million Question — What Happens If You Don’t File Your Taxes For A Decade?

Wall Street Journal Tax Report, The $26 Million Question: What Happens if You Don’t File Your Taxes for a Decade?:

The IRS can fill out a substitute return for you—and it usually isn’t accurate. And a lot of penalties and interest will accrue.

Even if you don’t go to jail, blowing off the Internal Revenue Service is a really bad idea.

Take Larry Cecil Cabelka of Megargel, Texas. Mr. Cabelka didn’t submit tax returns for 12 years during the 1990s and 2000s, according to a March 26 ruling in a civil case by a U.S. appeals court. As a result, said the court, he owes the U.S. more than $26 million.

Mr. Cabelka, who has worked as a farmer, harvester and farm-equipment dealer, says he doesn’t believe he should owe the $26 million because income and bank accounts attributed to him weren’t his, and that he thought his then-wife was filing some of his returns. He also calls a government attorney in his case “crooked and deceitful.” ...

Mr. Cabelka’s biggest mistake, in addition to not paying his taxes, is that he allowed interest and penalties to pile up because he didn’t file his returns. About two-thirds of Mr. Cabelka’s bill consists of these items, according to his appeals-court attorney, Christian Weiler of New Orleans. ...

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April 8, 2019 in Tax | Permalink | Comments (2)

Lesson From The Tax Court: Hoist By His Own Petard

Tax Court (2017)In 17th Century warfare, armies used a primitive explosive device called a petard to help breach castles and walled cities.  It was basically a bell filled with gunpowder that would be shoved in a tunnel or hole facing the wall or gate to be breached.  The operator, called an enginer (pronounced “engine-ur” with emphasis on first syllable) would light the fuse and scramble back.  If all did not go well, however, the enginer might be blown up (hoisted) in the resulting explosion.  Thus the expression.  It’s an extremely common trope in fiction starting at least as far back as Hamlet, and continuing in modern times, as this lovely time-wasting website extensively details.

In tax law taxpayers build both primitive and sophisticated devices to avoid taxation.  Last week’s decision in Allen R. Davison III v. Commissioner, T.C. Memo. 2019-26 (April 3, 2019)(Judge Ashford) involves a taxpayer whose tax reduction device consisted of layering partnerships.  How ironic, then, that it blew up his chances for pre-payment litigation over the merits of a tax assessment.  He did not learn that unhappy lesson until both the IRS and then the Tax Court refused to let him litigate the merits of his tax liability in the CDP process.  Details below the fold.

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April 8, 2019 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure | Permalink | Comments (2)

The IRS Tried To Take On The Ultrawealthy. It Didn’t Go Well.

ProPublicaProPublica, The IRS Tried to Take on the Ultrawealthy. It Didn’t Go Well.:

Ten years ago, the tax agency formed a special team to unravel the complex tax-lowering strategies of the nation’s wealthiest people. But with big money — and Congress — arrayed against the team, it never had a chance.

In 2009, the IRS ... formed a crack team of specialists to unravel the tax dodges of the ultrawealthy. In an age of widening inequality, with a concentration of wealth not seen since the Gilded Age, the rich were evading taxes through ever more sophisticated maneuvers. The IRS commissioner aimed to stanch the country’s losses with what he proclaimed would be “a game-changing strategy.” In short order, Charles Rettig, then a high-powered tax lawyer and today President Donald Trump’s IRS commissioner, warned that the squad was conducting “the audits from hell.” If Trump were being audited, Rettig wrote during the presidential campaign, this is the elite team that would do it. ...

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April 8, 2019 in IRS News, Tax | Permalink | Comments (1)

TaxProf Blog Weekend Roundup

Sunday, April 7, 2019

NY Times: Why Did Trump Make Confirmation Of IRS Chief Counsel His Top Priority?

Desmond 2New York Times, Trump Asked That Confirmation of I.R.S. Counsel Be a Priority:

President Trump earlier this year asked Senator Mitch McConnell, the majority leader, to prioritize a confirmation vote for his nominee to be the chief counsel of the Internal Revenue Service, indicating that it was a higher priority than voting on the nomination of William P. Barr as attorney general, a person familiar with the conversation said.

White House aides insisted for months that the confirmation of the nominee, Michael J. Desmond, a tax lawyer from Santa Barbara, Calif., was a top priority after passage of the tax bill in 2017.

But the request by Mr. Trump, made to Mr. McConnell on Feb. 5, raised questions about whether the president had other motivations. For months, the president has seethed over vows by congressional Democrats that they would move to obtain his tax returns from the I.R.S. And this week, the House Ways and Means Committee chairman, Representative Richard E. Neal, Democrat of Massachusetts, formally asked the I.R.S. for six years of the returns, using an obscure provision in the tax code to do so.

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April 7, 2019 in Tax | Permalink | Comments (6)

The Trump Tax Law And March Madness

March MadnessCenter for Public Integrity, The Trump Tax Law Has Its Own March Madness:

When March Madness wraps up late Monday night, the attention will be focused on the stars of the night and their exploits on the hardwood in Minneapolis. But when Republicans in Congress sat down to write the 2017 Tax Cuts and Jobs Act, they wrote a provision that focused on a different aspect of college hoops — the sky-high incomes of the game’s most prominent coaches.

With the pay of many college officials and coaches running into the millions of dollars, their salaries were an easy target for a Congress struggling to find revenue to pay for its huge bundle of tax cuts. So, Congress decided to tax them. Or, at least, some of them. And therein lies an ‘only in Washington’ tale.

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April 7, 2019 in Tax | Permalink | Comments (0)

The Top Five New Tax Papers

SSRN Logo (2018)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 #3 and #5:

  1. [368 Downloads]  A Constitutional Wealth Tax, by Ari Glogower (Ohio State) (reviewed by Hayes Holderness (Richmond) here)
  2. [215 Downloads]  Basis of Grantor Trust Assets Before the Grantor's Death, by Jeffrey Pennell (Emory)
  3. [181 Downloads]  Taxing the Digital Economy Post BEPS ... Seriously, by Andrés Báez (Universidad Carlos III de Madrid) & Yariv Brauner (Florida)
  4. [171 Downloads]  The Marriage of Artificial Intelligence and Tax Law: Past, Present, and Future, by Blazej Kuzniacki (Ministry of Finance, Poland)
  5. [170 Downloads]  Residual Profit Allocation by Income, by Michael Devereux (Oxford), Alan Auerbach (UC-Berkeley), Michael Keen (IMF), Paul Oosterhuis (Skadden), Wolfgang Schön (Max Planck) & John Vella (Oxford) (reviewed by Christine Kim (Utah) here)

April 7, 2019 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

Saturday, April 6, 2019

This Week's Ten Most Popular TaxProf Blog Posts

22nd Annual Critical Tax Theory Conference At Pepperdine

PEPPERDINE CAMPUS WITH LOGO (2019)Pepperdine hosts the 22nd Annual Critical Tax Theory Conference (program) today and tomorrow:

The Critical Tax Theory Conference has a long history of fostering the work of both established and emerging scholars whose research challenges and enriches the tax law and policy literature. Critical tax scholars question assumptions of objectivity in tax, as their work explores how tax law and policy impact historically marginalized groups. At a time when tax policy is once again at the forefront of politics and public discourse, the work of these and other critical tax scholars supports a more robust discussion of the role for tax law in current and future social and economic policy.

Panel #1: 

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April 6, 2019 in Conferences, Scholarship, Tax | Permalink | Comments (0)

Satterthwaite Presents Toward a Signaling Account Of Voluntary VAT Registration At Florida

Satterthwaite (2019)Emily Satterthwaite (Toronto) presented Toward a Signaling Account of Voluntary Value-Added Tax Registration at Florida yesterday as part of its Tax Colloquium Series:

In most jurisdictions, “small suppliers” (typically defined as businesses with annual turnover less than a specified “registration threshold”) are not required to register for, collect, or remit value-added tax (“VAT”). Registration thresholds typically are coupled with another VAT design feature: exempt small suppliers are offered the option to register. Existing studies have shown that, due to the ability to offer and claim credits for VAT paid on inputs, a small supplier’s likelihood of voluntarily registering grows stronger as it becomes more embedded in formal, VAT-registered supply chains. Recently, however, a novel explanation for voluntary VAT registration has surfaced: small supplier entrepreneurs may view voluntary registration as a way to secure reputational advantages. This paper explores the conceptual underpinnings of such an explanation for voluntary VAT registration through the lens of the costly signaling model (Spence 1973).

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April 6, 2019 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Friday, April 5, 2019

Weekly SSRN Tax Article Review And Roundup: Layser Reviews Barbieri's Lawmakers As Job Buyers

This week, Michelle Layser (Illinois) reviews Edward W. De Barbieri (Albany), Lawmakers as Job Buyers, 88 Fordham L. Rev. ___ (2019).

Layser (2018)Economic development tax incentives have been in the headlines a lot lately, thanks mostly to Amazon, which almost located its east coast headquarters in Queens, New York City. Before the deal collapsed, Amazon was poised to receive roughly $1.2 billion in refundable tax credits from the state of New York. In addition, the company may have qualified for tax-subsidized financing through the new Opportunity Zones program. (Amazon insisted that it would not participate in the program). The public was outraged. But as Professor Edward W. De Barbieri reminds us, the practice of wooing companies through large tax breaks is nothing new—and it leaves a lot to be desired.

Barbieri begins by providing a comprehensive overview of the tools state and local governments use to attract businesses. He describes how state and local governments use property tax abatements, tax credits, private activity bonds, and land use regulation like tax increment financing districts to subsidize private companies and influence their location decisions. He explains how such subsidies can have a negative impact on state and local budgets, particularly when they fail—and they often do.

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April 5, 2019 in Michelle Layser, Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Tax Policy In The Trump Administration

Georgetown Hosts Festschrift Today Honoring Daniel Halperin

Halperin (2019)Symposium, The Life and Work of Daniel Halperin:

In celebration of Daniel Halperin’s career, Georgetown University Law Center, the American Bar Foundation, and the Harvard Law School Fund for Tax and Fiscal Research are hosting a symposium focusing on Professor Halperin’s academic work. The event will include panels on taxation and the time value of money, taxation of retirement savings, and taxation of the non-profit sector, as well as a lunchtime keynote address by Professor Halperin.

Panel #1: Unmasking Interest in Disguise: Tax Law and the Time Value of Money

  • Lilian Faulhaber (Georgetown) (moderator) 
  • Michael Caballero (Covington & Burling)
  • Charlotte Crane (Northwestern)
  • David Walker (Boston University)

Keynote Address: Daniel Halperin

Panel #2: The Taxation of Retirement Savings

  • Anne Alstott (Yale)
  • Nancy Altman (Social Security Works)
  • John Brooks (Georgetown) (moderator)
  • Regina Jefferson (Catholic)

Panel #3: Taxation and the Non-Profit Sector

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April 5, 2019 in Conferences, Scholarship, Tax | Permalink | Comments (0)

The ETF 'Heartbeat Trade' Tax Dodge Is Wall Street’s ‘Dirty Little Secret

Bloomberg, The ETF Tax Dodge Is Wall Street’s ‘Dirty Little Secret’:

One day last September an unidentified trader pumped more than $3 billion into a tech fund run by State Street Corp. Two days later that trader pulled out a similar amount.

Why would someone make such a large bet—five times bigger than any previous transaction in the fund—and then reverse it so quickly? It turns out that transfusions like these are tax dodges, carried out by the world’s largest asset managers with help from investment banks. The beneficiaries are the long-term investors in exchange-traded funds. Such trades, nicknamed “heartbeats,” are rampant across the $4 trillion U.S. ETF market, with more than 500 made in the past year. One ETF manager calls them the industry’s “dirty little secret.”

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April 5, 2019 in Tax | Permalink | Comments (2)

Kamin & Oh: The Effects Of Capital Gains Rate Uncertainty On Realization

David Kamin (NYU) & Jason Oh (UCLA), The Effects of Capital Gains Rate Uncertainty on Realization:

Taxpayers should expect capital gains rates to fluctuate in light of frequent historical changes and the current divergence of rates preferred by Democrats and Republicans. This paper is the first to model the effect of such rate uncertainty on the realization incentives of asset holders and finds those effects to be potentially large. There are several implications. First, rate uncertainty may alleviate the lock-in effect of the realization rule when rates are low and exacerbate lock-in when rates are high. Second, there could be significant inaccuracies extrapolating the elasticity of capital gains realizations measured at one rate to another. Third, some policy solutions aimed at addressing distortions created by the realization rule may not work as well as expected.

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April 5, 2019 in Scholarship, Tax | Permalink | Comments (0)

Thursday, April 4, 2019

Brunson Presents Donor-Advised Funds And The Deferral of Charity Today At Indiana

BrunsonSam Brunson (Loyola-Chicago) presents “I’d Gladly Pay You Tuesday for a [Tax Deduction] Today”: Donor-Advised Funds and the Deferral of Charity at Indiana today as part of its Tax Policy Colloquium Series hosted by David Gamage:

While donor-advised funds have existed, in some form, since the 1930s,116 Congress did not explicitly mention them in the tax law until 2006. Although a significant percentage of the Tax Reform Act of 1969 dealt with tax-exempt organizations, creating the private foundation regime, it allowed donor-advised funds to slip through the cracks. As a result, donor-advised funds managed slip between regimes, enjoying the more-generous treatment available to public charities while acting in many ways like private foundations.

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April 4, 2019 in Colloquia, Scholarship, Tax | Permalink | Comments (2)

Avi-Yonah Presents Bridging The Red-Blue Divide: A Proposal For U.S. Regional Tax Relief Today At Duke

Avi-YonahReuven Avi-Yonah (Michigan) presents Bridging the Red-Blue Divide: A Proposal for U.S. Regional Tax Relief (with Orli Avi-Yonah (Catholic Social Services, Washtenaw County), Nir Fishbien (S.J.D. 2019, Michigan) & Haiyan Xu (S.J.D. 2019, Michigan) at Duke today as part of its Tax Policy Workshop Series hosted by Lawrence Zelenak:

Most large federal countries have explicit ways to reduce the economic disparities between more and less developed regions. In Germany, for example, federal revenues are distributed by a formula that takes into account the relative level of wealth of each state (the so-called Finanzausgleich, or fiscal equalization). Similar mechanisms are found in Australia, Canada, India, and other large federal countries. The United States, on the other hand, has no such explicit redistribution. Each state is generally considered equal and sovereign and the federal government does not distribute revenues to equalize their spending capacity. While the overall impact of the federal tax and transfer system may be to shift revenues from richer to poorer states, this is not acknowledged and to the extent it is discussed in the literature it is generally condemned as unfair to the states that send more revenues to Washington than they get back in federal transfer payments. Nor is it politically likely that the US will adopt a formal fiscal equalization mechanism.

This paper proceeds from the normative position that the increasing gap between the richer and poorer areas of the US is a problem that requires federal intervention and that the federal tax system can play a role in that intervention.

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April 4, 2019 in Colloquia, Scholarship, Tax | Permalink | Comments (2)

Brooks Reviews Cui's Digital Services Tax

Jotwell (Tax) (2016)Kim Brooks (Schulich School of Laws, Dalhousie University), Give the Digital Services Tax a Chance (JOTWELL) (reviewing Wei Cui (University of British Columbia), The Digital Services Tax: A Conceptual Defense (reviewed by Ruth Mason (Virginia) here) and The Digital Services Tax as a Tax on Location-Specific Rent):

 Conceptual Defense paper offers a good starting place for readers. It describes the current context and initiatives; for legal readers it highlights a few of the legal debates around the DST; and it opens the door to conversations about appropriate DST design in the light of alternative possible justifications.

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April 4, 2019 in Scholarship, Tax | Permalink | Comments (0)

Kleinbard: Section 199A Is Congress' Worst Tax Idea Ever

The Hill op-ed:  Congress' Worst Tax Idea Ever, by Edward Kleinbard (USC):

There’s $400 billion or so lying on the sidewalk of the tax landscape that can fund really useful public spending, if only Congress could be bothered to pick it up. That’s what Congress gave away in 2017 in the form of a tax subsidy for “qualified business income.”

New data from Congress’ own tax watchdog, the Staff of the Joint Committee on Taxation (JCT) [Overview of Deduction for Qualified Business Income: Section 199A], confirms what many of us suspected all along: The subsidy isn’t targeted to small business, or yeomen farmers but rather simply excuses the affluent from taxes imposed on the rest of us.

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April 4, 2019 in Tax | Permalink | Comments (4)

Ryznar: Tax Reform's Contribution To #MeToo

Margaret Ryznar (Indiana-Indianapolis), Tax Reform's Contribution to #MeToo, 161 Tax Notes 1101 (Nov. 26, 2018):

This article considers the 2017 tax reform provision that disallows tax deductions for sexual harassment settlements subject to nondisclosure agreements. It examines the possible effects on sexual harassment in the workplace, as well as remaining questions about the tax provision itself.

April 4, 2019 in Scholarship, Tax | Permalink | Comments (0)

Wednesday, April 3, 2019

Top Senate Democrat Proposes Annual Tax On Unrealized Capital Gains At Ordinary Income Rate

Crypto Lenders Push No-Tax Perk Of Leveraging Bitcoin For Cash

Bitcoin IRSBloomberg, Crypto Lenders Push No-Tax Perk of Leveraging Bitcoin for Cash:

Former Wall Street trader Edgar Fernandez used some of his Bitcoin as collateral to borrow nearly $100,000, a move that let him keep his cryptocurrency and avert a tax bill on the newly acquired cash.

The tax perk stems from a longstanding principle that assets aren’t taxed until sold, much like borrowing against stock holdings. Yet digital currency carries far greater risks, from price volatility, to hacks and thefts that can make the collateral disappear, to sometimes shadowy players without long track records in the field.

Since last fall, when the value of digital money plummeted, lenders have been pushing people who have paper profits to leverage them into cash by borrowing against their cryptocurrencies. And the fact that there’s no tax bill on the transactions is a big selling point. The Internal Revenue Service treats crypto money as a capital asset like stocks or property, not as a currency. ...

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April 3, 2019 in IRS News, Tax | Permalink | Comments (0)

Where In The U.S. Are You Most Likely To Be Audited By The IRS?

ProPublica, Gutting the IRS: Where in The U.S. Are You Most Likely to Be Audited by the IRS?:

Humphreys County, Mississippi, seems like an odd place for the IRS to go hunting for tax cheats. It’s a rural county in the Mississippi Delta known for its catfish farms, and more than a third of its mostly African American residents are below the poverty line. But according to a new study, it is the most heavily audited county in America.

IRS Audits

In a baffling twist of logic, the intense IRS focus on Humphreys County is actually because so many of its taxpayers are poor. More than half of the county’s taxpayers claim the earned income tax credit, a program designed to help boost low-income workers out of poverty. As we reported last year, the IRS audits EITC recipients at higher rates than all but the richest Americans, a response to pressure from congressional Republicans to root out incorrect payments of the credit.

The study estimates that Humphreys, with a median annual household income of just $26,000, is audited at a rate 51 percent higher than Loudoun County, Virginia, which boasts a median income of $130,000, the highest in the country.

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April 3, 2019 in IRS News, Scholarship, Tax | Permalink | Comments (2)

The Case For A Progressive Income Tax In Illinois

IllinoisIllinois Economic Policy Institute, The Impact of Enacting a Progressive Income Tax in Illinois: Understanding How Illinois Could Cut Middle-Class Taxes, Balance the Budget, and Grow the Economy (Apr. 1, 2019) (Fact Sheet) (Rebutting Concerns):

Governor J.B. Pritzker and the General Assembly have debated whether to amend the Illinois Constitution to allow the state to replace its flat-rate income tax system with a progressive (or “graduated-rate”) income tax. Illinois is currently one of only eight states that has a flat-rate tax, while 33 states have progressive income tax systems.

There are five main reasons for Illinois to consider adopting a progressive tax:

  1. It would promote tax fairness based on ability to pay. In Illinois, the top 1 percent of families brings in 65 times as much as the average income of the bottom 99 percent.
  2. It could cut taxes for working-class and middle-class families. Working-class and middle-class families in Illinois currently pay a greater share of their income in taxes than wealthy households, causing inequality to be worse after state and local taxes are collected.
  3. It could provide property tax relief for Illinois homeowners. At an average of over $5,200 per year, Illinois’ property taxes are among the highest in the nation.
  4. It would raise revenue and help produce budget stability. Illinois faces $10 billion in unpaid bills, more than $130 billion in unfunded pension liabilities, and a $1.2 billion structural deficit per year that have caused lawmakers to underinvest in core public services.
  5. It could boost the economy and create jobs. Progressive income taxes put more money in the pockets of middle-class families while raising taxes on the most affluent families to pay for broad-based public investments in education, infrastructure, and healthcare.

An analysis of Illinois Department of Revenue data reveals that a progressive income tax could accomplish 5 potential policy goals:

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April 3, 2019 in Tax | Permalink | Comments (1)

Tuesday, April 2, 2019

Marian Presents The Making Of International Tax Law: Empirical Evidence From Natural Language Processing Today At NYU

Marian (2016)Omri Marian (UC-Irvine) presents The Making of International Tax Law: Empirical Evidence from Natural Language Processing (with Elliott Ash (ETH Zurich)) at NYU today as part of its Tax Policy Colloquium Series hosted by Lily Batchelder and Daniel Shaviro:

We offer the first attempt at empirically testing the level of transnational consensus on the legal language controlling international tax matters. We also investigate the institutional framework of such consensus-building. We build a dataset of 4,052 bilateral income tax treaties, as well as 16 model tax treaties published by the United Nations (UN), Organisation for Economic Co-operation and Development (OECD) and the United States. We use natural language processing to perform pair-wise comparison of all treaties in effect at any given year. We identify clear trends of convergence of legal language in bilateral tax treaties since the 1960s, particularly on the taxation of cross-border business income.

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April 2, 2019 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Galle Presents How To Save Unemployment Insurance Today At Georgetown

Galle (2019)Brian Galle (Georgetown) presents How to Save Unemployment Insurance, 50 Ariz. St. L.J. 1009 (2018), at Georgetown today as part of its Tax Law and Public Finance Workshop Series hosted by John Brooks and Lilian Faulhaber:

Unemployment insurance is almost universally recognized as one of a government’s best tools for fighting recessions, as well as an important source of relief for working-class families suffering temporary hardship. Unfortunately, as commentators and Congress have recognized, the U.S. system of financing its unemployment insurance program is seriously dysfunctional. Reform proposals, however, do not fully diagnose the causes of current failures. In particular, other commentators neglect the role of fiscal myopia in state officials’ failures to save for future UI needs. For instance, reformers mostly propose offering rewards or penalties that will take effect far in the future. These incentives have only small effects on myopic officials.

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April 2, 2019 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Avi-Yonah Presents Bridging The Red-Blue Divide: A Proposal For U.S. Regional Tax Relief At Florida

Avi-YonahReuven Avi-Yonah (Michigan) presented Bridging the Red-Blue Divide: A Proposal for U.S. Regional Tax Relief (with Orli Avi-Yonah (Catholic Social Services, Washtenaw County), Nir Fishbien (S.J.D. 2019, Michigan) & Haiyan Xu (S.J.D. 2019, Michigan) at Florida yesterday as part of its Tax Colloquium Series:

Most large federal countries have explicit ways to reduce the economic disparities between more and less developed regions. In Germany, for example, federal revenues are distributed by a formula that takes into account the relative level of wealth of each state (the so-called Finanzausgleich, or fiscal equalization). Similar mechanisms are found in Australia, Canada, India, and other large federal countries. The United States, on the other hand, has no such explicit redistribution. Each state is generally considered equal and sovereign and the federal government does not distribute revenues to equalize their spending capacity. While the overall impact of the federal tax and transfer system may be to shift revenues from richer to poorer states, this is not acknowledged and to the extent it is discussed in the literature it is generally condemned as unfair to the states that send more revenues to Washington than they get back in federal transfer payments. Nor is it politically likely that the US will adopt a formal fiscal equalization mechanism.

This paper proceeds from the normative position that the increasing gap between the richer and poorer areas of the US is a problem that requires federal intervention and that the federal tax system can play a role in that intervention.

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April 2, 2019 in Colloquia, Scholarship, Tax | Permalink | Comments (1)

The Effectiveness Of Voter Registration Drives At Volunteer Income Tax Assistance Sites

Vanessa Williamson (Brookings Institution), The Filer Voter Experiment: How Effective Is Voter Registration at Tax Time? (Apr. 2, 2019):

In this paper, Vanessa Williamson discusses the Filer Voter experiment, which assessed the effectiveness of conducting voter registration drives at Volunteer Income Tax Assistance (VITA) sites for lower-income households in Cleveland and Dallas. The Filer Voter program doubled the likelihood of unregistered tax filers registering to vote. Replicated at all VITA sites nationally, this would lead to about 115,000 unregistered eligible voters to register to vote, including 63,000 people who would not otherwise register.

Brookings 2

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April 2, 2019 in Scholarship, Tax | Permalink | Comments (2)

Crawford: Blockchain Wills

BlockchainBridget J. Crawford (Pace), Blockchain Wills, 94 Ind. L.J. ___ (2019):

Blockchain technology has the potential to radically alter the way that people have executed wills for centuries. This Article makes two principal claims – one descriptive and the other normative. Descriptively, the Article suggests that traditional wills formalities have been relaxed to the point that they no longer serve the cautionary, protective, evidentiary and channeling functions that scholars have used to justify strict compliance with wills formalities. Widespread use of digital technology in everyday communications has led to several notable cases in which individuals have attempted to execute wills electronically. These wills have had a mixed reception. Three states currently recognize electronic wills and the Uniform Law Commission is drafting a model Electronic Wills Act This Article identifies some of the weaknesses in existing state statutes and the model law and considers how technology can address those problems.

This Article explores how blockchain, the open-source technology underlying cryptocurrency like Bitcoin, could be harnessed to create a distributed ledger of wills that would maintain a reliable record of a testator’s desires for the post-mortem distribution of estate assets.

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April 2, 2019 in Scholarship, Tax | Permalink | Comments (0)

Báez & Brauner: Taxing The Digital Economy Post-BEPS

Andrés Báez (Universidad Carlos III de Madrid) & Yariv Brauner (Florida), Taxing the Digital Economy Post BEPS ... Seriously:

For years the advent of the digital economy has left countries stumped in their attempt to tax income earned by foreign firms without physical presence within their jurisdiction. International organizations and their member countries have failed in their attempts to tweak the rules of the international tax regime and address these challenges presented by the digital economy. This article argues that such conservative approach could not work, and fundamental reform is inevitable.

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April 2, 2019 in Scholarship, Tax | Permalink | Comments (0)

Monday, April 1, 2019

The Tax Lawyer Publishes New Issue

Krugman: The Incredible Shrinking Trump Boom

New York Times op-ed:  The Incredible Shrinking Trump Boom, by Paul Krugman:

So far, Donald Trump has passed only one significant piece of legislation: the 2017 tax cut. It was, to be fair, a pretty big deal: corporations, the principal beneficiaries, have already saved more than $150 billion, and over the course of a decade the tax cut will probably increase the budget deficit by more than $2 trillion.

But the tax cut was supposed to do more than just give stockholders more money — or at least that’s what its proponents claimed. It was also supposed to lead to many years of high economic growth, 3 percent or more at an annual rate.

Independent observers were skeptical, to say the least. They conceded that the tax cut might lead to a brief sugar high, because that’s what big deficits do. But any favorable effects on growth, they argued, would soon fade out. And they always insisted that it would take some time to assess the tax cut’s actual effects.

Nonetheless, when the economy grew pretty fast in the second quarter of last year, Trump and his supporters cried

But a bit of time has passed since then. The chart shows the U.S. economy’s growth rate by quarter since the beginning of 2018. The last number isn’t official; but there are a number of independent observers, including both Federal Reserve banks and private financial institutions, who produce “nowcasts” that estimate growth based on early data. At this point all of these nowcasts show slowing growth, and most put the first quarter at around 1.5 percent.

Krugman Chart

So do the results so far look like the huge, sustained boom the Trump camp promised, or the brief sugar high predicted by the critics?

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April 1, 2019 in Tax | Permalink | Comments (3)

Lesson From The Tax Court: Telling Stories

I teach my tax students that representing a taxpayer is about being the taxpayer’s voice.  They must tell the taxpayer’s story as best they can fit the facts to the law.  Thus, for example, in order to deduct expenses taxpayers must tell a convincing story that the expenses relate to an activity engaged in for profit.  Last week's Lesson concerned taxpayers who said they had converted their former personal residence into income producing property.  The story their representative told was simply too inconsistent with the facts to convince the Court.  Thus they were denied a §165 deduction when they sold the home for a loss.

Firefly

This week’s lesson is similar.  In Edward G. Kurdziel, Jr. v. Commissioner, T.C. Memo 2019-20 (Judge Holmes), the taxpayer bought a plane, restored it, and flew it around the country. That's him flying his plane in the picture.  Here's a video!  What fun!

Oh, and he also took deductions for depreciation and ongoing expenses that far, far, far exceeded income from the plane.  He offset those losses against his hefty airline pilot salary.  The IRS eventually audited and disallowed the losses under the hobby loss rules.  So the taxpayer tried to sell the Tax Court on a story of profit-making activity.  In his usual airy, pun-filled, style, Judge Holmes explained why the taxpayer’s story didn’t fly.  Peter Reilly calls this the coolest hobby loss case ever.  He has a nice summary of the case on his Forbes blog.  What I see in the case is a lesson about storytelling.  One big reason the taxpayer lost here is because he told conflicting stories to different tax authorities.  Telling one story to your local tax authorities and another story to the IRS is, ultimately, not a successful tax reduction strategy.   You are trying to fool one of them.  I thought this was a particularly apropos lesson for today, April 1.  You will find the interesting details, with pictures of the crash (Mr. K was unhurt), below the fold.  If that's not click-bait, I don't know what is.  Who can resist seeing pictures of a crash? 

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April 1, 2019 in Bryan Camp, New Cases, Scholarship, Tax | Permalink | Comments (2)

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April 1, 2019 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

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April 1, 2019 in About This Blog, Legal Education, Tax | Permalink | Comments (1)

TaxProf Blog Weekend Roundup

Sunday, March 31, 2019

Thomas: Misplaced Outrage Over Tax Refunds Was Predictable And Preventable

The Hill op-ed:  Misplaced Outrage Over Tax Refunds Was Predictable and Preventable, by Kathleen Delaney Thomas (North Carolina):

The biggest surprise about the recent fallout over lower tax refunds is that anybody in Washington is surprised. People love their tax refunds. Psychologists and economists have been documenting this phenomenon for decades.

For some, a refund helps them save for a major purchase like a car. For others, the refund feels like a windfall that they might spend on a vacation. Still others prefer overpaying their taxes because they dread the uncertainty of a tax bill. ...

The tax reform bill cut taxes for most individuals, so why are some refunds shrinking? The reason is that Treasury changed the withholding tables last year. For many, this meant less withholding and slightly bigger paychecks.

But the increased pay may have been too small for people to notice. Refunds, on the other hand, are highly salient. ...

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March 31, 2019 in Tax | Permalink | Comments (0)

The Top Five New Tax Papers

SSRN Logo (2018)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. [359 Downloads]  A Constitutional Wealth Tax, by Ari Glogower (Ohio State) (reviewed by Hayes Holderness (Richmond) here)
  2. [201 Downloads]  Tax Wars: The Battle over Taxing Global Digital Commerce, by Art Cockfied (Queen's)
  3. [200 Downloads]  Basis of Grantor Trust Assets Before the Grantor's Death, by Jeffrey Pennell (Emory)
  4. [163 Downloads]  The Marriage of Artificial Intelligence and Tax Law: Past, Present, and Future, by Blazej Kuzniacki (Ministry of Finance, Poland)
  5. [147 Downloads]  How The Netherlands Became a Tax Haven for Multinationals, by Jan Vleggeert (Leiden) & Henk Vording (Leiden)

March 31, 2019 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

Saturday, March 30, 2019

This Week's Ten Most Popular TaxProf Blog Posts

NY Times: The Taxman Is (Not) Coming After You

IRS Logo 2New York Times editorial, The Taxman Is (Not) Coming After You:

The federal government is ignoring the easy part of the solution to its fiscal problems — collecting billions of dollars in unpaid taxes.

According to federal prosecutors, the California lawyer Michael Avenatti has not filed a federal income tax return since 2010, and he has not paid federal income taxes since 2008.

This may seem astonishing to the millions of Americans who dutifully file tax returns each year, under the assumption that the government would notice if they didn’t.

But it should not come as a surprise. Congressional Republicans led the charge to sharply reduce funding for the Internal Revenue Service over the past decade, and the agency has warned repeatedly that it has been deprived of the resources necessary to catch tax cheats.

The government has been operating on the honor system — and hoping that no one noticed. ...

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March 30, 2019 in IRS News, Tax | Permalink | Comments (4)

National Tax Association Issues Call For Papers: 112th Annual Conference On Taxation

National Tax Association (2016)The National Tax Association has issued a Call for Papers for its 112th Annual Conference on Taxation in Tampa on November 21-23, 2019:

The 112th Annual Conference on Taxation will cover a broad range of topics including, but not limited to, taxation and tax policies; expenditure policies; government budgeting; intergovernmental fiscal relations; and subnational, national, and international public finance. The conference will focus, as always, on policy-relevant research bearing on taxation and government spending. Submissions from the fields of accounting, economics, law, public policy, and tax administration are encouraged.

You are invited to submit the following: individual papers to be integrated into sessions, proposals for complete sessions of papers, and proposals for panel discussions. The submission deadline is June 1, 2019. Decisions concerning the inclusion of papers and sessions will be announced in July 2019. All presenters, including members of panel discussions, must then register and pay a conference registration fee.

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March 30, 2019 in Conferences, Scholarship, Tax | Permalink | Comments (0)