TaxProf Blog

The Tax Lawyer Publishes New Issue

The Tax Lawyer has published Vol. 71, No. 4 (Summer 2018):

• ABA Section of Taxation, State and Local Taxes Committee, An Examination of Unclaimed Property Laws after the Adoption of RUUPA: Suggestions for Continued Advancement, 71 Tax Law. 941  (2018)
• Niki Ford (Baker & McKenzie, New York), Tax Reform in a “World Without Chevron”: Will Tax Regulations Withstand the Review of Justice Gorsuch?, 71 Tax Law. 975 (2018)
• Dan M. Smolnik (Pastore & Dailey, Stamford, CT), The Connecticut Municipal Property Tax: Its Roots and Branches, 71 Tax Law. 1011 (2018)

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Evelyn Brody: Tax Prof Artist

Sam Brunson (Loyola-Chicago) has a great post describing Suspended Animation an exhibition of  pastels by Tax Prof Evelyn Brody (Chicago-Kent) at the Leslie Wolfe Gallery.  You can check out her pastels and drawings on her website, including a description of her work.

Oxford Seeks To Hire A Tax Prof

The Professorship of Taxation Law provides an excellent opportunity for an enthusiastic candidate with outstanding intellectual leadership skills to consolidate and enhance Oxford's reputation as a centre for excellence in research and teaching in tax law. As well as offering tax courses as part of its undergraduate and postgraduate degrees, Oxford is home to the part-time MSc in Taxation, launched in 2016, which is taught jointly with colleagues at the Centre for Business Taxation in the Said Business School, so this is a particularly exciting time to join the tax community in the university.

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TaxProf Blog Holiday Weekend Roundup

Wednesday:

• IRS Won't Clawback Gifts When Exclusion Reverts Back To $5 Million In 2026
• 70 Percent Of New Partners Are Dissatisfied With Their Job
• Weisbord: The Governmental Stake In Private Wealth Transfer
• Why Pepperdine Stays Put When Wildfires Rage

Thanksgiving:

• Carter: The Thanksgiving Address America Needs To Hear
• WKRP In Cincinnati Thanksgiving Turkey Drop
• Kirkland & Ellis Drops Mandatory Arbitration For Associates Amid Law Student Boycott
• Hedge Fund Investors Lose Key Tax Break For Management Expenses: '1.5 And 17' Is The New '2 And 20'

Friday:

• Weekly SSRN Tax Article Review And Roundup: Elkins Reviews The Global Battle to Capture MNE Profits By Bankman, Kane & Sykes
• Weekly Legal Education Roundup
• Tax Policy In The Trump Administration
• Key Lawmaker Urges State Bar To Re-Evaluate Bar Exam

Saturday:

• This Week's Ten Most Popular TaxProf Blog Posts
• Federal District Court Allows Former Male John Marshall Law School Employee's Gender Discrimination Claim To Proceed
• Another IRS Free Speech Scandal
• NY Times: Conservative Heritage Foundation Revives Training Academy For Judicial Law Clerks

Sunday:

• Fifty Ways To Promote Law School Teaching And Learning
• Stop The Tax On Houses Of Worship
• Why Is Walter F. George Disappearing From Mercer Law School?
• The Top Five New Tax Papers

Stop The Tax On Houses Of Worship

Wall Street Journal op-ed:  Stop the Tax on Houses of Worship, by Russell Moore  (Southern Baptist Convention):

A little-noticed provision in the Tax Cuts and Jobs Act of 2017 now looms over faith communities in America, raising serious questions about religious freedom and the First Amendment. While this provision is a relatively small piece of the overall package, the effect of the policy it created will be felt by the faithful around the country.

This change is a new policy to tax nonprofit organizations—including houses of worship, like the Southern Baptist churches I serve—for the cost of parking and transit benefits provided to employees. This effectively creates an income tax on churches. As Michael Martin of the Evangelical Council for Financial Accountability has noted, that has never happened in U.S. history.

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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 #2:

1. [191 Downloads]  The Illegality of Digital Services Taxes Under EU Law: Size Matters, by Ruth Mason (Virginia) & Leopoldo Parada (Turin)
2. [181 Downloads]  Tax Competition and the Ethics of Burden Sharing, by Ivan Ozai (McGill)
3. [155 Downloads]  Double Non-Taxation and the Use of Hybrid Entities: An Alternative Approach in the New Era of BEPS, by Leopoldo Parada (Turin)
4. [148 Downloads]  The Mandatory Repatriation Tax Is Unconstitutional, by Sean McElroy (Stanford)
5. [145 Downloads]   Profit Shifting Before and After the Tax Cuts and Jobs Act, by Kimberly Clausing (Reed)

This Week's Ten Most Popular TaxProf Blog Posts

1. Why Pepperdine Stays Put When Wildfires Rage
2. Big Change In The U.S. News Law School Specialty Rankings
3. July 2018 California Bar Exam Pass Rate Falls To 67-Year Low
4. Another IRS Free Speech Scandal
5. Jerry Organ (St. Thomas), Observations On Enrollment Patterns For The Fall 2018 Entering Class Based On Preliminary Data
6. Bryan Camp (Texas Tech), Lesson From The Tax Court: The Hotel California Rule
7. Mark Cohen (CEO, Legal Mosaic), What Are Law Schools Training Students For?
8. Bryan Camp (Texas Tech), Lesson From The Tax Court: Counting The Days
9. University of Illinois Law School Releases Additional Documents Related To Allegations Of Professor's Sexual Misconduct
10. NTA 111th Annual Conference On Taxation

Another IRS Free Speech Scandal

Wall Street Journal op-ed:  Another IRS Free-Speech Scandal, by David B. Rivkin (Baker & Hostetler, Washington, D.C.) & Randal John Meyer (Cato Institute Center for Constitutional Studies):

The Internal Revenue Service infamously targeted dissenters during President Obama’s re-election campaign. Now the IRS is at it again. Earlier this year it issued a rule suppressing huge swaths of First Amendment protected speech. The regulation appears designed to hamper the marijuana industry, which is still illegal under federal law although many states have enacted decriminalization measures. But it goes far beyond that.

The innocuously named Revenue Procedure 2018-5 contains a well-hidden provision enabling the Service to withhold tax-exempt status from organizations seeking to improve “business conditions . . . relating to an activity involving controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by federal law.” That means that to obtain tax-exempt status under any provision of the Internal Revenue Code’s Section 501—whether as a charity, social-welfare advocacy group or other type of nonprofit—an organization may not advocate for altering the legal regime applicable to any Schedule I or II substance.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews The Global Battle to Capture MNE Profits By Bankman, Kane & Sykes

This week, David Elkins (Netanya) reviews a new paper by Joseph Bankman (Stanford), Mitchell Kane (NYU) & Alan Sykes (Stanford), Collecting the Rent: The Global Battle to Capture MNE Profits, 72 Tax L. Rev. __ (2019): 

This article focuses on the concept of economic rent within the context of the taxation and regulation of multinational enterprises (MNEs). Rent is the income above and beyond what is necessary in order to induce an individual or firm to engage in any particular economic activity. For marginal producers, the rent will be zero. Infra-marginal producers will recognize varying degrees of rent. One consequence of the concept of economic rent is that a tax or regulatory scheme that extracts some or even all of that rent will not likely affect a firm’s behavior. In contrast, a tax or regulatory scheme that extracts more than rent will likely induce a change in behavior.

In describing rent, the authors distinguish between true economic rent and quasi-rent. Assume that there is a firm that has already incurred a large economic outlay in order to establish a production line, develop intellectual property and so forth. The difference between its income and its current costs is quasi-rent. However, to determine its true economic rent, we would also need to factor in its initial economic outlay. The difference is significant because a tax or regulatory scheme that extracts quasi-rents may not change the firm’s immediate behavior, but will affect future investment. Therefore, taxing quasi-rents is not sustainable on a long-time basis.

 

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Tax Policy In The Trump Administration

• Bloomberg, Trudeau Unveils $10.5 Billion in Tax Cuts to Keep Up With Trump
• Bloomberg, Walmart Deal Brings Flipkart Founders Under Tax Probe
• MarketWatch, How the New Tax Law Affects Vacation Home Owners
• Jim Maule (Villanova), Tax Breaks and Corporate Blackmail 

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Carter: The Thanksgiving Address America Needs To Hear

Stephen L. Carter (Yale), The Thanksgiving Address America Needs to Hear:

As we prepare to celebrate Thanksgiving in our angry and divided country, let us travel back 150 years, to the Thanksgiving of 1868, a time when the country was far angrier and more divided. Just three years had passed since the end of the Civil War, and resentments still smoldered. The Pulaski Riot in Tennessee and the Camilla Massacre in Georgia were fresh in the nation’s memory. In the victorious North, meanwhile, anti-immigrant sentiment was rising.

That’s what makes the Thanksgiving address of a certain Dr. Marcus Jastrow, rabbi of Philadelphia’s Congregation Rodeph Shalom, so extraordinary. His stirring message still resonates, and if we take it seriously, we will be the better for it.

Jastrow took as his text the 100th Psalm ...

[Shout for joy to the Lord, all the earth.
Worship the Lord with gladness;
come before him with joyful songs.
Know that the Lord is God.
It is he who made us, and we are his;
we are his people, the sheep of his pasture.
Enter his gates with thanksgiving
and his courts with praise;
give thanks to him and praise his name.
For the Lord is good and his love endures forever;
his faithfulness continues through all generations.]

which he interpreted as a call for national unity:

The principle of freedom and equality to all, the principle on which American institutions are based, calls upon every American to obliterate all differences, both political as well as religious, at the moment of celebrating a national idea. ...

Before God, the Creator of us all, there is no difference between man and man, and so it ought to be among mankind. You have no right to establish a discrimination between the children of the same Father – you have no right to assign the country to one faith or one sect, for it is God that made us; it is He that made this nation and enabled it to erect its government of freedom. ...

Therefore, remember thy origin, O! American people, remember that it was the banner of freedom and equality to all, inscribed with the idea that the Creator has made all men equal and endowed them with inalienable rights, remember that it was the banner of freedom and equality to all under which God gave thee victory and success! Be cautious and never change this universal banner into an exclusive one! ...

Remember that we are all His people and the flock of His pasture; and all who dwell on the fields of this country have the same rights to its rich pasture, consisting not alone in the material food it gives to its inhabitants, but far more in the sweet satisfaction and happiness of mind, which this great country with its free institutions offers to the poorest as well as to the richest of its children, to the exclusion of none.

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WKRP In Cincinnati Thanksgiving Turkey Drop

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Hedge Fund Investors Lose Key Tax Break For Management Expenses: '1.5 And 17' Is The New '2 And 20'

Bloomberg, Hedge Fund Investors Lose Key Tax Break for Management Expenses:

For some hedge fund investors, President Donald Trump’s tax overhaul adds insult to the injury from poor investment performance.

The Republican law eliminates deductions for certain expenses that wealthy taxpayers previously could itemize on their returns, including the management fees paid to hedge fund managers, which are usually mandatory. Now, rich investors will have to eat every penny of those expenses — even if the fund investments lose money. ...

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IRS Won't Clawback Gifts When Exclusion Reverts Back To $5 Million In 2026

IR-2018-229 (Nov. 20, 2018), Making Large Gifts Now Won’t Harm Estates After 2025:

Today the IRS announced that individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.

The Treasury Department and the IRS issued proposed regulations which  implement changes made by the 2017 Tax Cuts and Jobs Act (TCJA). As a result, individuals planning to make large gifts between 2018 and 2025 can do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025.

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Weisbord: The Governmental Stake In Private Wealth Transfer

Reid K. Weisbord (Rutgers), The Governmental Stake in Private Wealth Transfer, 98 B.U. L. Rev. 1229 (2018):

Wealth transfer law reform in the United States has been almost singularly dominated by principles of donative autonomy and dispositional freedom. In its unhesitating pursuit of donor preference facilitation, however, wealth transfer law has overlooked important governmental interests in the regulation of gratuitous transfers. This Article proposes a novel unifying theory for regulating gifts, wills, and trusts by arguing that the law should better account for three aspects of the governmental stake in private wealth transfer: (1) the enforcement of criminal and civil laws, (2) the conservation and allocation of public financial resources, and (3) efficiency in the administration of justice.

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Satterthwaite Presents Entrepreneurs' Legal Status Choices And The C Corporation Penalty At UC-Irvine

Emily Satterthwaite (Toronto) presented Entrepreneurs' Legal Status Choices and the C Corporation Penalty at UC-Irvine yesterday as part of its Tax Policy Colloquium Series hosted by Josh Blank, Vic Fleischer, and Omri Marian:

Foundational to the American Dream is the ability to easily and rapidly start a new business. Over the past quarter century, the introduction of the limited liability company (LLC) has dramatically shifted the choice-of-legal-status calculus, and in its wake a consensus against the use of traditional C corporations by non-venture-backed start-ups has emerged.  The C corporation, scholars argue, has fatal drawbacks: tax disadvantages as well as governance inflexibility.  Due to historically limited sources of data, there has been little empirical research on choice-of-entity generally and none that explores the anti-C corporation thesis in particular.  Do C corporations under-perform as compared to similarly-situated businesses with alternative legal statuses?  This paper exploits a large panel dataset that contains legal status, owner, business, financing, and other firm-specific information collected from an eight-year panel survey of nearly five thousand enterprises that were formed in 2004.  The paper presents four main results. 

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Bankman, Kane & Sykes: The Global Battle To Capture Multinational Enterprise Profits

Joseph Bankman (Stanford), Mitchell Kane (NYU) & Alan Sykes (Stanford), Collecting the Rent: The Global Battle to Capture MNE Profits, 72 Tax L. Rev. ___ (2019):

Multinational enterprises (MNEs) often earn substantial profits, or "economic rents." Often, these MNEs are domiciled in the United States, and the rents derive from ownership of intellectual property. These MNEs have structured their affairs to pay little taxes to countries outside the United States or otherwise to share their rents in these countries. Apple and Microsoft, for example, may earn roughly half their profits outside the United States but do not pay significant amounts of taxes to any foreign country.

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SSRN Tax Professor Rankings

SSRN has updated its monthly rankings of 750 American and international law school faculties and 3,000 law professors by (among other things) the number of paper downloads from the SSRN database.  This ranking includes downloads from two 30- and 35-page papers by 12 tax professors on the new tax legislation that garnered a lot of media attention (including the New York Times and Washington Post) and generated a massive amount of downloads (the papers are the most downloaded papers over the past 12 months across all of SSRN and the most downloaded tax papers of all-time by over 200%).  See Brian Leiter (Chicago), 11 Tax Profs Blow Up The SSRN Download Rankings. (For some reason, Mitchell Kane (NYU) — the twelfth academic co-author of the two papers — is not included in the SSRN download rankings (although the downloads are included on his individual author page)).  Here is the new list (through November 1, 2018) 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 (Mich.)	178,540	Reuven Avi-Yonah (Mich.)	105,338
2	Dan Shaviro (NYU)	114,509	Daniel Hemel (Chicago)	102,784
3	David Gamage (Indiana)	110,268	David Gamage (Indiana)	97,375
4	Lily Batchelder (NYU)	108,229	Darien Shanske (UC-Davis)	97,046
5	Daniel Hemel (Chicago)	107,673	Manoj Viswanathan (Hastings)	96,591
6	Darien Shanske (UC-Davis)	104,322	Dan Shaviro (NYU)	96,523
7	Cliff Fleming (BYU)	99,943	Lily Batchelder (NYU)	94,480
8	David Kamin (NYU)	96,820	David Kamin (NYU)	94,295
9	Manoj Viswanathan (Hastings)	96,814	Cliff Fleming (BYU)	94,034
10	Rebecca Kysar (Fordham)	96,116	Ari Glogower (Ohio State)	93,961
11	Ari Glogower (Ohio State)	94,361	Rebecca Kysar (Fordham)	93,796
12	Michael Simkovic (USC)	41,337	Gladriel Shobe (BYU)	10,686
13	D. Dharmapala (Chicago)	35,481	Jacob Goldin (Stanford)	3,889
14	Paul Caron (Pepperdine)	34,815	Michael Simkovic (USC)	3,607
15	Louis Kaplow (Harvard)	30,390	Richard Ainsworth (BU)	3,507
16	Richard Ainsworth (BU)	25,956	Kirk Stark (UCLA)	3,507
17	Ed Kleinbard (USC)	25,232	Joe Bankman (Stanford)	3,460
18	Vic Fleischer (UC-Irvine)	25,011	D. Dharmapala (Chicago)	3,226
19	Jim Hines (Michigan)	24,039	Dennis Ventry (UC-Davis)	3,052
20	Gladriel Shobe (BYU)	23,787	Ruth Mason (Virginia)	2,529
21	Richard Kaplan (Illinois)	23,145	Sam Donaldson (Georgia St.)	2,470
22	Ted Seto (Loyola-L.A.)	22,985	Kyle Rozema (Chicago)	2,355
23	Katie Pratt (Loyola-L.A.)	21,544	Brad Borden (Brooklyn	2,275
24	Robert Sitkoff (Harvard)	21,235	Omri Marian (UC-Irvine)	2,193
25	David Weisbach (Chicago)	20,542	Hugh Ault (Boston College)	2,178

Note that this ranking includes full-time tax professors with at least one tax paper on SSRN, and all papers (including non-tax papers) by these tax professors are included in the SSRN data.

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Fordham Conference: International Tax Law Changes In The 2017 Tax Cuts And Jobs Act

Shobe Presents Economic Segregation, Tax Reform, And The Local Tax Deduction Today At Loyola-L.A.

Gladriel Shobe (BYU) presents Economic Segregation, Tax Reform, and the Local Tax Deduction at Loyola-L.A. today as part of its Tax Policy Colloquium Series hosted by Ellen Aprill and Katie Pratt: 

Economic segregation has increased over the past half century. The trend of rich neighborhoods getting richer while poor neighborhoods get poorer is particularly concerning because it limits upward mobility for children and perpetuates intergenerational income inequality. Although scholars and governments have studied the effects and consequences of economic segregation, they have overlooked the connection between economic segregation and the federal deduction for local taxes.

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Hellerstein & Appleby: Substantive And Enforcement Jurisdiction In A Post-Wayfair World

Walter Hellerstein (Georgia) & Andrew Appleby (Stetson), Substantive and Enforcement Jurisdiction In a Post-Wayfair World, 90 State Tax Notes 283 (Oct. 22, 2018):

In this article, the authors examine the Wayfair case through the lens of substantive and enforcement jurisdiction and focus on the question whether there is a constitutionally required relationship between the nexus of the person that the state seeks to enlist as the tax collector and the underlying activity that the state is taxing.

Democratic Congressman Responds To Grewal's Post On Trump's Tax Returns

Hon. Bill Pascrell, Jr (D-NJ 9th District), Scrutinizing Trump’s Taxes is in Congress’s Power, 36 Yale J. on Reg.: Notice & Comment (Nov. 16, 2018):

I read with great interest Andy Grewal’s recent post on plans by House Democrats to compel the release to Congress of Donald Trump’s tax returns [The Battle For Trump’s Taxes And The President’s Potential Revenge] As a Democratic Member of the House of Representatives and the leader of my caucus’s efforts to expose Trump’s financial records to sunlight, I felt it appropriate to respond to Grewal’s piece.

Our focus on Trump’s personal and business tax returns stems from Trump’s refusal to provide a scintilla of transparency on his family’s corporate empire. As the first man to become President not to release any of his tax returns in decades, his rejection of democratic norms is bad enough, made unbearable given the size, scope and opacity of Trump’s companies. Recent investigations detailing widespread tax fraud and other financial crimes by Trump and his family only add to our urgency to scrutinize Trump’s returns. ...

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Lesson From The Tax Court: Counting The Days

As a young child I counted the days to Christmas starting December 1st, using advent calendars.  As I grew older, advertisements taught me that not all days were equal; one counted “shopping days” differently than calendar days.  As I now grow old, the Christmas season starts the day after Halloween, briefly tolled by days around Thanksgiving. 

Counting days is important in tax law, both for substance (e.g. figuring holding periods, allocating expenses between business days and personal days) and procedure (e.g. applying limitation periods).  Fortunately, how one counts days in tax has not changed much since I was a child.  So the lesson we find in last week’s case of Randy Richardson and Melisa Richardson v. Commissioner, T.C. Memo. 2018-189 (Nov. 13, 2018), should stick with us for a while. 

Richardson involves a married couple who filed a CDP petition contesting NFTLs filed against them.  Shortly after filing their CDP petition they filed a bankruptcy petition and received a discharge.  When the IRS denied CDP relief, the Richardsons sought Tax Court review, arguing that the IRS did not correctly account for the discharge they got in bankruptcy.  They ended up before Judge Lauber.  The resulting lesson is how counting days can be important to resolving the question of what taxes the IRS can later collect.  Even more important, it’s a lesson on when NOT to use CDP, but to instead request an “Equivalent Hearing.”  Details below the fold.  You can count on it.

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TaxProf Blog Weekend Roundup

Saturday:

• This Week's Ten Most Popular TaxProf Blog Posts
• WSJ: Forget The Playoff, College Football’s Burning Question Is About Taxes
• July 2018 California Bar Exam Pass Rate Falls To 67-Year Low
• Lederman: Increased Transparency In The U.S. Tax Court: Has The Moment Arrived?

Sunday:

• NTA 111th Annual Conference On Taxation
• WSJ: Switch To Chained CPI Will Erode Trump Tax Cut Next Year
• New International Student Enrollment In American Higher Ed Fell 6.6% In 2017, On Heels Of 3.3% Decline In 2016
• The Top Five New Tax Papers

NTA 111th Annual Conference On Taxation

Highlights of the National Tax Association 111th Annual Conference on Taxation in New Orleans (full program here):

Plenary Panel on Fiscal Policy After the Midterm Elections
Moderator: William Gale (Brookings)
Panelists: Michael Graetz (Columbia), James Hines (Michigan), Mark Prater (PricewaterhouseCoopers), Kim Rueben (Tax Policy Center), Betsey Stevenson (Michigan)

Digital Aspects of International Tax
Chair: Omri Marian (UC-Irvine)

• Wei Cui (British Columbia),  Three Arguments in Defense of the EU’s Proposed Digital Services Tax
• Michael Devereux (Oxford) & John Vella (Oxford), Taxing the Digitalised Economy: Targeted or System-Wide Reform?
• Lilian Faulhaber (Georgetown), Is Digital Different? Economic Nexus and Other Efforts to Respond to the Changing International Tax Landscape
• Monica Gianni (California State-Northridge), Is Digital Different? Economic Nexus and Other Efforts to Respond to the Changing International Tax Landscape
• Discussants:  Omri Marian (UC-Irvine), Ruth Mason (Virginia)

Inequality and Taxation
Chair: Patrick Sharma (Cooley)

• Miranda Perry Fleischer (San Diego), The Architecture of a Universal Basic Income
• Jonathan Grossberg (Robert Morris), Something for Nothing: Universal Basic Income and Work
• Zachary Liscow (Yale), The Dilemma of Moral Commitments in Addressing Inequality
• Nancy Shurtz (Oregon), Rural America Rejuvenated with New Tax Approaches
• Discussants:  Tracey Roberts (Samford), Steven Sheffrin (Tulane)

Legal Perspectives on the TCJA
Chair: Lilian Faulhaber (Georgetown)

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WSJ: Switch To Chained CPI Will Erode Trump Tax Cut Next Year

Wall Street Journal, Trump Tax Cut to Be Eroded Next Year by Inflation Switch:

Last year’s big tax cut is about to start shrinking.

The Internal Revenue Service on Thursday announced the tax code’s parameters for 2019, implementing a new method for making inflation adjustments that will result in higher tax payments—and government revenue—over time.

The shift will cost Americans $133.5 billion over a decade, according to Congress’s Joint Committee on Taxation.

The tax law enacted last year lowered tax rates and reduced tax burdens for most households in 2018. It also required the IRS to switch to a different, slower-moving measure of inflation to adjust a variety of tax-code features for rising prices. ...

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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 #2:

1. [171 Downloads]  Tax Competition and the Ethics of Burden Sharing, by Ivan Ozai (McGill)
2. [165 Downloads]  The Illegality of Digital Services Taxes Under EU Law: Size Matters, by Ruth Mason (Virginia)
3. [145 Downloads]  Double Non-Taxation and the Use of Hybrid Entities: An Alternative Approach in the New Era of BEPS, by Leopoldo Parada (University of Turin)
4. [141 Downloads]  The Mandatory Repatriation Tax Is Unconstitutional, by Sean McElroy (Stanford)
5. [138 Downloads]  The Proposed SALT Regulations May Be Doomed, by Andy Grewal (Iowa)

This Week's Ten Most Popular TaxProf Blog Posts

1. 'Big Law Killed My Husband': An Open Letter From A Sidley Partner's Widow
2. Bryan Camp (Texas Tech), Lesson From The Tax Court: The Hotel California Rule
3. Fires Cause Massive Destruction In Malibu, But Pepperdine Is Safe
4. University of Illinois Law School Releases Additional Documents Related To Allegations Of Professor's Sexual Misconduct
5. The Elite Teaching The Elite: Who Gets Hired By The Top Law Schools?
6. Non-Elite Universities Launch Medical, Not Law, Schools In Search Of Future Financial Stability
7. Scholars With Surnames Beginning With Letters Early In The Alphabet Have An Unfair Advantage In Citation Studies
8. July 2018 New York Bar Exam Results: NYU #1
9. NY Times: Trump’s Tax Cut Was Supposed To Change Corporate Behavior. Here’s What Happened.
10. SCOTUS Clerk Signing Bonuses Reach $400,000; Jones Day Hires 11 Clerks, Including Pepperdine Law Grad

WSJ: Forget The Playoff, College Football’s Burning Question Is About Taxes

Wall Street Journal Tax Report, Forget the Playoff, College Football’s Burning Question Is About Taxes:

The tax treatment of college football donations has turned into a bewildering tangle thanks to last year’s tax overhaul, the most far-reaching rewrite of the U.S. tax code since 1986. Buried in the bill was the repeal of a write-off for so-called seat donations. Internal Revenue Service guidance on lingering questions about the change isn’t expected for months.

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Lederman: Increased Transparency In The U.S. Tax Court: Has The Moment Arrived?

Leandra Lederman (Indiana), Increased Transparency in the U.S. Tax Court: Has the Moment Arrived?:

Transparency is a widely accepted judicial norm. It increases courts’ accountability and thereby increases the confidence and trust litigants and the general public have in courts’ decisionmaking. The comparatively limited access afforded to Tax Court documents is a longstanding issue. The reason Tax Court transparency differs from that of other courts is partly structural, in that the Tax Court isn’t as neatly situated in the federal government’s org chart as Article III courts, administrative agencies, or even Article I courts such as the Court of Federal Claims. (In fact, even which branch of government the Tax Court is located in has presented a puzzle.) Accordingly, the Tax Court traditionally has created many of its own rules and procedures, such as ones governing access to its documents. This means that the question is also partly cultural. As discussed below, access to Tax Court documents has increased over time, and the appointment of several new Tax Court judges may mean that we see further changes in the future. ...

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Shaheen's Income Tax Treaty Aspects Of Nonincome Taxes

This week, Sloan Speck (Colorado) reviews a new work by Fadi Shaheen (Rutgers), Income Tax Treaty Aspects of Nonincome Taxes: The Importance of Residence, 71 Tax L. Rev. 583 (2018).

In Income Tax Treaty Aspects of Nonincome Taxes: The Importance of Residence, Fadi Shaheen argues that, in any transition from an income tax to a nonincome tax, a critical gating consideration is how that nonincome tax interplays with the concept of residence in bilateral tax treaties based on the U.S. and OECD models. In defining the scope of nonincome taxes, Shaheen lists the usual suspects—consumption and cash flow taxes such as VATs, the flat tax, and the DBCFT—as well as newer varieties, such as equalization and turnover taxes on digital transactions. One of Shaheen’s important insights is that a person’s tax residence, a primary criterion to claim treaty benefits, depends on the taxes to which that person is subject. For a newly introduced nonincome tax, the problem is larger than just whether the treaty applies to the tax instrument. Instead, the issue is that the nonincome tax may preclude persons in the relevant contracting state from claiming any treaty benefits at all. In this sense, nonincome taxes may trigger tax treaty Armageddon, rather than some milder form of dislocation that is cabined to the nonincome tax’s direct reach.

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Tax Policy In The Trump Administration

• Bloomberg, $630 Million Death Tax Keeps LG Heir Out of Billionaires’ Club
• Bloomberg, Banks Are Losing Fight to Spike Tax on Sales Above $285 Million
• Bloomberg, Democrats Are Going to Try to Raise the Corporate Tax Rate
• Bloomberg, U.S. Companies Flee No-Tax Caribbean Havens After EU Crackdown

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Pepperdine At Daybreak

We feel grateful and blessed to be back at our beloved Pepperdine this morning.

Ruth Mason Posts Two Tax Papers On SSRN

• The Illegality of Digital Services Taxes Under EU Law: Size Matters
• A Political-Process Defense of Deutsche Bahn Deference

Barry Presents The Transition (Under-) Tax Today At Northwestern

Jordan Barry (San Diego) presents The Transition (Under-) Tax at Northwestern today as part of its Advanced Topics in Taxation Workshop Series hosted by Sarah Lawsky:

One of the most significant effects of the Tax Cuts and Jobs Act (“TCJA”) was shifting the United States from a worldwide tax system to a territorial one: Before the TCJA, U.S. corporations were subject to tax on all of the income they earned, regardless of where they earned it; after the TCJA, U.S. corporations generally will not have to pay U.S. federal income tax on profits earned outside of the United States. The TCJA coupled this permanent shift with a one-time transition tax (the “Transition Tax”). The Transition Tax taxes the trillions of dollars of income that U.S. corporations earned outside of the United States, but which had not yet been subjected to U.S. tax, at a rate of either 8% or 15.5%, depending on how the income was invested. There is much to criticize about the Transition Tax.

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Fox Presents Ironing Out The Tax Law At Michigan

Edward Fox (Michigan) presented Ironing Out the Tax Law (with Jacob Goldin (Stanford)) yesterday at Michigan as part of its Tax Policy Workshop Series hosted by Reuven Avi-Yonah:

The law is full of sharp lines, where small changes in one’s circumstances lead to significant changes in legal treatment. In many cases, a sharp line can be smoothed out — or “ironed” — by replacing it with a sliding scale. Under a sliding scale, small changes in one’s circumstances lead to small changes in legal treatment. In this paper, we study the policy choice between sharp lines and sliding scales in the tax law, focusing particularly on concerns related to efficiency, complexity, and administration. Sliding scales are common for tax provisions that depend on income, but relatively uncommon for provisions that depend on non-income factors.

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Krugman: The Tax Cut And The Balance Of Payments

New York Times op-ed:  The Tax Cut and the Balance of Payments (Wonkish), by Paul Krugman:

Now that Democrats have taken the House, it seems likely that the Tax Cuts and Jobs Act will turn out to have been the only major piece of legislation enacted under Donald Trump. There might conceivably be an infrastructure bill, but don’t get your hopes up: Trump’s people seem dead set against straightforward public spending, i.e., just building the damn infrastructure, and Democrats probably won’t agree to privatization disguised as public investment.

Now, the TCJA played almost no role in the midterms: Republicans dropped it as a selling point, focusing on fear of brown people instead, while Democrats hammered health care. But now that the election is past, it seems like a good idea to revisit the bill and its effects. What I want to focus on in this piece is the effects on the balance of payments.

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The Coming Global Digital Tax Showdown

Bloomberg Tax, A Global Digital Tax Showdown Looms. Here’s What Could Happen:

The world’s biggest tech companies are staring down the barrel of a new tax on their European revenue.

The EU’s divisive effort to create a special tax for Google, Facebook, and their peers is at a pivotal moment as proponents of the so-called digital tax push for a December vote. The measure would impose a 3 percent temporary turnover tax on the biggest multinational tech companies—those with 750 million euros or more in global turnover and 50 million euros in EU sales.

The tax is more than just a new levy. It could create deep fissures in the global consensus on how to tax major companies.

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Democrats Intend To Get Hold Of Trump’s Tax Returns, But Their 'Intemperate Comments' May Block Their Access

Bloomberg, Democrats ‘Intent’ on Getting Hold of Trump’s Tax Returns:

Democrats are in discussions about the best way to get the Treasury Department to hand over President Donald Trump’s tax returns, according to the incoming chairman of the House Ways and Means Committee.

“We don’t have a timetable yet, but we’ve talked about it, and we are certainly intent on doing it,” Representative Richard Neal, a Massachusetts Democrat who will lead the committee next year, told reporters Tuesday.

The heads of the House and Senate tax-writing committees have the authority to request any individual tax return from the Treasury secretary, including the president’s. Trump departed from roughly 40 years of tradition for presidential candidates by refusing to release his tax returns during the 2016 campaign. The forms, or some of the information they contain, could effectively become public if the committee votes to release them.

In practice, however, the process could turn into a protracted legal battle if Treasury Secretary Steven Mnuchin decides to delay sending the tax documents to Congress.

Law & Crime, Dems May Have Already Screwed Themselves Out of Getting Trump’s Tax Returns:

Congress has the power to call for Trump’s tax returns, but according to University of Iowa Law Professor Andy Grewal, it has to be for a legitimate legislative purpose. That means you can’t just do things out of spite or because you want to embarrass the president. As the Supreme Court said in Watkins v. United States, “there is no congressional power to expose for the sake of exposure.”

In a February 2017 post for Yale’s Notice & Comment blog, Grewal noted that while Section 6103(f) of the U.S. tax code makes it clear that committees can get someone’s tax return information, “any congressional action, including requests for information, must come within the scope of legislative powers granted by Article I of the Constitution.” That means, Grewal said, that “a request for President Trump’s tax returns, if made for purely political purposes, may exceed legislative powers.” ...

One thing that often came up during this year’s election season was that if Democrats took control of the House of Representatives, they could theoretically impeach the president. After the election, when they secured a majority, Democratic leadership made it clear that impeachment was not on the agenda—barring a bombshell report from Robert Mueller—but that they could use other powers to investigate the president. One specific power that they’re looking to exercise is the power to force the release of President Donald Trump‘s tax returns for Congress to review them.

Unfortunately, they may have already blown their chance before they even tried.

Yes, technically Congress has the power to call for Trump’s tax returns, but according to University of Iowa Law Professor Andy Grewal, it has to be for a legitimate legislative purpose. That means you can’t just do things out of spite or because you want to embarrass the president. As the Supreme Court said in Watkins v. United States, “there is no congressional power to expose for the sake of exposure.”

In a February 2017 post for Yale’s Notice & Comment blog, Grewal noted that while Section 6103(f) of the U.S. tax code makes it clear that committees can get someone’s tax return information, “any congressional action, including requests for information, must come within the scope of legislative powers granted by Article I of the Constitution.” That means, Grewal said, that “a request for President Trump’s tax returns, if made for purely political purposes, may exceed legislative powers.”

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Rosenbloom Presents The BEAT And The Treaties Today At Pennsylvania

David Rosenbloom (NYU)  presents The BEAT and the Treaties, 92 Tax Notes Int'l 53 (Oct. 1, 2018) with Fadi Shaheen (Rutgers)), at Pennsylvania today as part of its Tax Law and Policy Workshop Series hosted by Michael Knoll, Chris Sanchirico, and Reed Shuldiner:

In this article, the authors discuss the base erosion and antiabuse tax [BEAT] implemented under the U.S. Tax Cuts and Jobs Act, focusing on its relationship with U.S. tax treaties currently in force. The first relevant provision in the U.S. Model Income Tax Convention is the commitment in article 23 (relief from double taxation), paragraph 2, of an FTC for income tax of the treaty partner “in accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof).” It is possible to ponder the precise meaning of the quoted words, but there is no need to do that for the BEAT.

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Amazon Could Win Big Under Trump's New Opportunity Zone Tax Break

Bloomberg Tax, Amazon NY Could Win Big Under Tax Break Meant for Distressed Zones:

Amazon could benefit from federal tax breaks designed to revitalize struggling communities if it builds all or part of its second headquarters in Long Island City.

The company’s eligibility comes down to whether the IRS would view a new headquarters as a new entity or as a part of Amazon’s larger umbrella. ...

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2019 National Tax Moot Court Competition Registration Is Open

Registration is open for the 2019 National Tax Moot Court Competition, being held March 7-9, 2019, on the University of Florida campus in Gainesville, Florida. This year, the competition is co-sponsored by the Florida Bar Tax Section and UF Levin College of Law. The problem release date is November 19, 2018, with a submission deadline of January 19, 2019.

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Oei & Osofsky: Beyond Notice-and-Comment — The Making Of The § 199A Regulations

Shu-Yi Oei (Boston College) & Leigh Osofsky (North Carolina), Beyond Notice-and-Comment: The Making of the § 199A Regulations:

Congress passes a highly transformative but hastily drafted legal reform. Who comments in the regulatory process, when, and what are the implications? In this Article, we study these questions by examining how the regulatory process has unfolded in the case of § 199A, one of the central provisions from the monumental 2017 tax reform.

We document the comments that went into making the § 199A regulations from the time of legislative enactment through the hearing on the proposed regulations. We show that many comments were made before the proposed regulations were issued and the official administrative law notice-and-comment period had even opened. We examine how Treasury explicitly considered these comments in the proposed regulations. And we explore how these comments and other engagements—which were not wholly transparent to the public—shaped the proposed regulations and the subsequent conversation in the actual notice-and-comment period. We also investigate the role of indirect public dialogue and comments received after the official close of the notice-and-comment period.

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Scharff: The Challenge Of Pricing Externalities Under State Law

Erin Scharff (Arizona State), Green Fees: The Challenge of Pricing Externalities Under State Law, 97 Neb. L. Rev. 168 (2018):

Policymakers at the state and local level are increasingly interested in using market-based pricing mechanisms as regulatory tools. For example, at the state level, several states have recently considered state-level carbon pricing, while at the local level, municipal governments are increasingly turning to stormwater remediation fees to pay for the treatment of municipal runoff required by the Clean Water Act.

These regulatory programs are inspired by the insight of English economist Arthur Pigou, who suggested governments could price social costs into market transactions by imposing a tax. Such policies, however, are frequently subject to state court litigation challenging them as unlawful taxes. State law restricts both state and local governments’ ability to enact taxes, but similar restrictions are often not in place to limit the enactment of regulatory actions or user fees. Unfortunately, state courts have struggled to appropriately classify these fees under existing state law doctrines.

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Fleming Presents Real Worldwide v. Territorial Taxation After The TCJA Today At Boston College

J. Clifton Fleming, Jr. (BYU) presents An Early Look at Real Worldwide v. Territorial Taxation After the TCJA (with Robert Peroni (Texas) & Stephen Shay (Harvard) today at Boston College today as part of its Tax Policy Workshop Series hosted by Jim Repetti, Diane Ring, and Shu-Yi Oei:

In the run up to enactment of the 2017 Tax Cuts and Jobs Act (TCJA) one of the principal U.S. tax policy issues was how foreign source active business income of U.S. multinational enterprises (MNEs) should be taxed by the United States if the system of deferring U.S. tax on active income of a foreign subsidiary was ended. Should active foreign income be taxed under a territorial or exemption system—i.e. bear no residual U.S. tax—or should it be subjected to real worldwide taxation—i.e. current taxation at regular U.S. rates coupled with a credit for foreign income tax paid limited to the U.S. tax on the foreign-source income as measured for U.S. tax purposes.

The opposing sides were not without common ground. Both agreed that the existing U.S. system for taxing the foreign-source active-business income of U.S. MNEs was bad because it generally did not impose U.S. tax until the active income of foreign subsidiaries was repatriated, either through dividends or by sale of subsidiary stock at a price reflecting accumulated foreign-source income.

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Elkins Presents The Case Against Income Taxation Of Multinational Enterprises Today At Hebrew University

David Elkins (Netanya) presents The Case Against Income Taxation of Multinational Enterprises, 36 Va. Tax Rev. 143 (2017), today at the Hebrew University of Jerusalem Faculty of Law:

Probably the most uncontroversial thing that one can say about international taxation is that it is a mess. Sophisticated planning techniques, which seem beyond the power of taxing authorities to control, enable highly profitable multinational enterprises (MNEs) to pay little or no tax on their income. Efforts by transnational organizations to coordinate action in an attempt to rescue the international tax regime from collapse have hitherto proven ineffective. Some commentators have speculated that any attempt to impose tax on MNEs in a globalized economy is doomed to failure.

The focus of this article is in the taxation of foreign MNEs by the countries in which they operate, and its thesis is that the choice of income as a base for taxing foreign MNEs is inappropriate both normatively and practically.

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NY Times: Trump’s Tax Cut Was Supposed To Change Corporate Behavior. Here’s What Happened.

New York Times, Trump’s Tax Cut Was Supposed to Change Corporate Behavior. Here’s What Happened.:

Nearly a year after the tax cut, economic growth has accelerated. Wage growth has not. Companies are buying back stock and business investment is a mixed bag.

The $1.5 trillion tax overhaul that President Trump signed into law late last year has already given the American economy a jolt, at least temporarily. It has fattened the paychecks of most American workers, padded the profits of large corporations and sped economic growth.

Those results weren’t a surprise. Economists across the ideological spectrum predicted the new law would fuel consumer spending, in classic fashion: When the government borrows money and dumps it into the economy, growth tends to accelerate. But Republicans did not sell the law as a sugar-high stimulus. They sold it as a refashioning of the incentives in the American economy — one that would unleash more investment, better efficiency and higher wages, along with enough growth to offset any revenue lost to the government from lower tax rates.

Ten months after the law took effect, that promised “supply-side” bump is harder to find than the sugar-high stimulus. It’s still early, but here’s what the numbers tell us so far:

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Ordower: Abandoning Realization And The TCJA Transition Tax

Henry Ordower (Saint Louis), Abandoning Realization and the Transition Tax: Toward a Comprehensive Tax Base:

The Tax Cuts and Jobs Act of 2017 imposed a tax, the “transition tax,” on as much as 31 years of undistributed, accumulated corporate income. This article focus on that transition tax as it evaluates the function and constitutionality of the tax and considers whether the transition tax might serve as a model for addressing the broader problem of deferred income in the United States. The article views the transition tax as joining the expatriation tax and other mark to market inclusion provisions in abandoning any pretext that there is continued vitality in the realization principle as something more compelling than any other longstanding and obsolescing tax principle. Recommending that Congress seize the Tax Cuts and Jobs Act moment and discard the general rule deferring the inclusion of gain in income through a realization requirement in favor of the annual marking to market of all the taxpayer’s property, the article models a general mark to market transition tax after the new transition tax on deferred foreign income.

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Borden: S-Corporation Cash-Out Break-Ups And § 1031 Exchanges

Bradley T. Borden (Brooklyn), S-Corporation Cash-Out Break-Ups and Code Sec. 1031 Exchanges, 21 J. Passthrough Entities 21 (2018):

Many legacy S-Corporations (those with real property purchased before the advent of LLCs) still own real property with the prospect of selling or transferring it as part of a generational change in ownership. With such dispositions, the owners may have different objectives for the use of the property’s sale proceeds and may wish to part ways. Many tax advisors are familiar with techniques that apply to similar types of break-ups of partnerships and LLCs, which allow some parties to exchange property tax free under Code Sec. 1031 while others cash out. S-Corporation break-ups are taxed differently from partnership and LLC break-ups, so the same types of transactions that are tax-free in the partnership or LLC context could trigger gain recognition for members of S-Corporations.

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Marron Presents Designing A Carbon Tax Dividend Today At Loyola-L.A.

Donald Marron (Urban Institute) presents Designing a Carbon Tax Dividend at Loyola-L.A. today as part of its Tax Policy Colloquium Series hosted by Ellen Aprill and Katie Pratt: 

A robust carbon tax would generate considerable revenue. Some carbon tax advocates have suggested returning those revenues to Americans through direct payments, often called carbon dividends. We examine how to design these dividends considering two, sometimes conflicting principles. Carbon dividends can be viewed as shared income from a communal property right, much as Alaskans share in income from the state’s oil resources. Dividends can also be viewed as rebating the carbon tax back to consumers. These views often have different implications for designing carbon dividends.

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