Blue J Predicts With 90% Confidence That Taxpayer In Podlucky Would Not Win Innocent Spouse Claim

Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal),  Susan Massey (Director, Blue J Legal) & Christopher Yan (Senior Legal Research Associate, Blue J Legal), Relief of Innocent Spouses — Not So Podlucky, 178 Tax Notes Fed. 1339 (Feb. 27, 2023):

In this article, the authors use the Blue J machine-learning algorithm to examine Podlucky, an innocent spouse relief case recently decided by the Tax Court, demonstrating how useful artificial intelligence tools can be in calibrating the strengths and weaknesses of clients’ circumstances and predicting likely outcomes in similar cases.

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Blue J Predicts: The Intersection Between Tax Credits And Trade Or Business

Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal) & Christopher Yan (Senior Legal Research Associate, Blue J Legal), The Intersection Between Tax Credits and Trade or Business, 178 Tax Notes Fed. 689 (Jan. 30, 2022):

In last month’s installment of Blue J Predicts [The Rise Of The Robotic Tax Analyst], we reflected on the state of predictive tax analytics in 2023 and the long-term role of artificial intelligence in tax analysis, drawing on OpenAI’s Generative Pre-Trained Transformer 3 (GPT-3). This month, we revisit a prediction made in February 2022, in which we analyzed the appeal of the Tax Court’s decision in Olsen before the Tenth Circuit [Blue J Predicts With 86%-95% Confidence That 10th Circuit Will Find That Taxpayer In Olsen Was Not Engaged In A Trade Or Business].  A central dispute in the case involved determining whether the Olsens’ activity constituted a trade or business — a crucial question with significant financial consequences for deductions, credits, exemptions, disqualifications, and penalties. The Tax Court held for the commissioner, deciding that the taxpayers were not engaged in a trade or business, and thus not entitled to specific deductions, credits, and exemptions.

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Gómez: Too Good To Be True—Private Placement Life Insurance Policies

Luís Calderón Gómez (Cardozo; Google Scholar), Too Good to Be True: Private Placement Life Insurance Policies, 178 Tax Notes Fed. 555 (Jan. 23, 2023): 

In this article, Calderón Gómez examines a tax avoidance scheme involving private placement life insurance policies — large policies that potentially allow wealthy taxpayers to move their traditionally tax-inefficient investments in private equity and hedge funds into a life insurance policy and accumulate, borrow against, and pass on those investment gains effectively tax free — and sketches some possible alternatives to stop the abuse of these policies.

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Hellerstein & Appleby: The Internet Tax Freedom Act At 25

Walter Hellerstein (Georgia) & Andrew D. Appleby (Stetson; Google Scholar), The Internet Tax Freedom Act at 25, 107 Tax Notes St. 7 (Jan. 2, 2023):

In October 1998, Congress enacted the Internet Tax Freedom Act (ITFA), a temporary three-year “moratorium” on the enactment of new state and local “taxes on Internet access” and on “multiple or discriminatory taxes on electronic commerce.” After extending the act temporarily several times, Congress, in 2016, finally and controversially struck the language temporarily extending the act, thereby making it permanent.

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Alarie: The Rise Of The Robotic Tax Analyst

Benjamin Alarie (Toronto; Google Scholar; CEO, Blue J Legal), The Rise of the Robotic Tax Analyst, 178 Tax Notes Fed. 57 (Jan. 2, 2023):

As a bold taxwriting experiment, this installment of Blue J Predicts has been generated with the help of an AI assistant, OpenAI’s “Generative Pre-Trained Transformer 3” (GPT-3). GPT-3 is a large language model developed by OpenAI and backed by Microsoft. It is an inexhaustible generator of text and can write with accuracy in English about almost any topic. It has performed its duty, with my human companionship, indefatigably.

This isn’t the first time that a legal academic has invoked a robotic coauthor, and I expect that these kinds of tools will become increasingly commonplace. I expect that eventually they will be about as remarkable as using a spelling or grammar checker. At this moment, however, before the rise of the robotic tax analyst, using GPT-3 to help write this article is likely to raise some eyebrows.

In October 2021 I produced a peer-reviewed law review article with my academic colleague, the late (and great) tax law professor Arthur Cockfield of Queen’s University. The article was notable for being the first peer-reviewed law review article to extensively leverage GPT-3 in its production. In that article — after a short introduction penned by us, Benjamin Alarie and Cockfield — we gave GPT-3 control of the metaphorical keyboard and allowed it to produce its textual analysis uninterrupted and unedited.

The results were mixed and intriguing, and certainly pointed in the direction of future possibility. In our view, GPT-3 had potential. In the article, we speculated on the future of AI in legal scholarship and asked provocatively in the title, “Will Machines Replace Us?” Cockfield and I concluded that “although GPT-3 is not up to the task of replacing law review authors currently, we are far less confident that GPT-5 or GPT-100 might not be up to the task in future.”

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Christians & Shay: The Consistency Of Pillar 2 UTPR With U.S. Bilateral Tax Treaties

Allison Christians (McGill; Google Scholar) & Stephen E. Shay (Boston College; Google Scholar), The Consistency of Pillar 2 UTPR With U.S. Bilateral Tax Treaties, 178 Tax Notes Fed. 499 (Jan. 23, 2023):

In this report, Christians and Shay explain why the pillar 2 undertaxed profits rule would be consistent with U.S. bilateral income tax treaties, and they explore some of the reasons underlying claims that the UTPR is incompatible with those treaties.

Conclusion
The UTPR is not a tax on income, nor is it likely to be characterized as in lieu of a tax on income. Instead, it is a cash tax expense that can be collected in any manner and most probably is in the nature of an excise tax. Contrary to the claims of GOP lawmakers and other commentators, the better view is that the UTPR is not covered by existing tax treaties at all, so it cannot be said to conflict with their terms.

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Soled & Alm: Is A Tax-Motivated Bonanza Of Electric Vehicle Gifts On The Horizon?

Jay A. Soled (Rutgers; Google Scholar) & James Alm (Tulane; Google Scholar), Is a Bonanza of Electric Vehicle Gifts on the Horizon?, 178 Tax Notes Fed. 257 (Jan. 9, 2023):

In this article, Soled and Alm argue that some provisions of the Inflation Reduction Act could encourage taxpayers to make automobile-related gifts, not out of generosity but as part of a strategy designed to achieve significant income tax savings. ...

Conclusion
In light of taxpayers’ tendencies to make the most of available tax-saving opportunities, automobile gift-giving may soon become a trend. This phenomenon would subvert the IRA’s legislative intent of having the clean vehicle credit accrue to taxpayers of moderate economic means, and it would cost the treasury lost revenue and undermine taxpayer confidence in the tax system.

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Blue J Predicts: Conflicting Duties And The Trust Fund Recovery Penalty

Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal) & Ann Velez (Senior Legal Research Associate, Blue J Legal), Cashaw: Conflicting Duties and the Trust Fund Recovery Penalty, 177 Tax Notes Fed. 1257 (Nov. 28, 2022):

Employers in the U.S. are required to help the federal government in its tax administration endeavors by periodically withholding and remitting employees’ payments for income taxes, Social Security, and Medicare. That duty is special: Under section 7501(a), employers hold employee payroll tax withholdings in trust for the United States. For this reason, payroll withholdings are sometimes referred to as “trust fund taxes.” One of the tools the IRS uses to collect withholdings when employers fail to remit them on time (or at all) is the trust fund recovery penalty (TFRP).

A person can be found responsible and willful for failure to remit even if they were neither a director nor an officer of the employer. And a person can be saddled with TFRP liability even if they experienced a conflict between the duty to remit taxes and other duties, such as obedience to their employer, obligations under state law, their professional code of conduct, or their moral convictions. Litigated TFRP cases frequently reflect these kinds of challenging circumstances. Cashaw [v. Commissioner, T.C. Memo. 2021-123 (Oct. 27, 2021)], is no exception. In October 2021 the Tax Court, while expressing sympathy for Pamela Cashaw’s situation as an administrator of a cash-strapped hospital, noted that it was a court of law, not equity, and ruled that she must be held personally liable for the TFRP in the approximate amount of $173,000. The case has been appealed to the Fifth Circuit.

We assess Cashaw’s prospects on appeal.

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Fleming, Peroni & Shay: Viewing GILTI Tax Rates Through A Tax Expenditure Lens

J. Clifton Fleming Jr. (BYU; Google Scholar), Robert J. Peroni (Texas) & Stephen E. Shay (Boston College; Google Scholar), Viewing the GILTI Tax Rates Through a Tax Expenditure Lens, 177 Tax Notes Fed. 1525 (Dec. 12, 2022):

In this article, the authors explain that for U.S. corporations earning foreign-source active business income through controlled foreign corporations, pre-Tax Cuts and Jobs Act tax deferral planning is now largely obsolete and has been replaced with planning that centers on avoiding subpart F income and maximizing global intangible low-taxed income. They also explain that the low GILTI tax rates are a tax expenditure that fares poorly under cost-benefit analysis, even when taking into account the new U.S. corporate minimum tax and the possibility of modifications that would make the GILTI regime pillar 2 compliant.

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Mason: The EU Arm’s-Length Standard Is Dead

Ruth Mason (Virginia; Google Scholar), Ding-Dong! The EU Arm’s-Length Standard Is Dead, 177 Tax Notes Fed. 1377 (Dec. 5, 2022):

In this article, Mason argues that the recent decision by the Court of Justice of the European Union vacating the European Commission’s state aid decision in Fiat is a positive development for the rule of law and member state tax sovereignty.

Conclusion
If you have been following my articles on state aid so far, you know that I am no fan of the commission’s sui generis state aid standard. Fiat represents an important loss for the commission, but I prefer to see it as a significant win for the rule of law in the EU.

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Parsons: May I Pay More? Lessons From Jarrett For Blockchain Tax Policy

Amanda Parsons (Colorado; Google Scholar), May I Pay More? Lessons From Jarrett for Blockchain Tax Policy, 176 Tax Notes Fed. 2063 (Sept. 26, 2022):

In this article, Parsons examines Jarrett, a pending refund suit in which the taxpayers argue that blockchain reward tokens should be included in income only upon sale or exchange (a position that would raise their tax bills), and she explores why they sought this treatment and what implications it holds for policymakers trying to develop a tax regime for blockchain activities.

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Johnson: More On The Interest Deduction Ceiling

Calvin H. Johnson (Texas), Annex and Errata on Ceiling on Interest Deductions, 177 Tax Notes Fed. 1251 (Nov. 28, 2022):

In this article, Johnson supplements his argument that interest deductions should be limited to a ceiling of the interest rate times adjusted basis, and he clarifies when the remedy is inappropriate, that capitalization doesn’t remedy the negative tax harm, and that all exempt income should be subtracted from adjusted basis for the ceiling calculation [Interest Ceiling Must Be Adjusted Basis Times Interest Rate, 176 Tax Notes Fed. 1987 (Sept. 26, 2022)].

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Kane: The Dispute Over Perpetual Conservation Easements Just Got Worse

Mitchell A. Kane (NYU), The Dispute Over Perpetual Conservation Easements Just Got Worse, 177 Tax Notes Fed. 1211 (Nov. 28, 2022):

In this report, Kane argues that the Supreme Court should not grant certiorari in Oakbrook Land Holdings LLC v. Commissioner, a conservation easement case in which the Sixth Circuit upheld a Treasury regulation regarding the agreed distribution of proceeds to follow on state law extinguishment of the easement.

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Blue J Predicts: The Economic Substance Doctrine And Excise Tax Credits Related To Alcohol-Fuel Mixtures

Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal) & Christopher Yan (Senior Legal Research Associate, Blue J Legal), Chemoil: Economic Substance, Tax Credits, and Unprofitable Ventures, 177 Tax Notes Fed. 719 (Oct. 31, 2022):

In this article, Alarie and Yan analyze the economic substance arguments in Chemoil, an ongoing refund suit involving otherwise unprofitable sales of an alcohol-fuel mixture for which the taxpayer was denied excise tax credits under section 6426.

In this month’s Blue J Predicts column, we examine the parties’ economic substance arguments in the ongoing litigation in Chemoil. The case involves tax refunds denied by the IRS for excise tax credits related to alcohol-fuel mixtures. The topic discussed in Chemoil bears a close relationship to last month’s installment of Blue J Predicts, in which we correctly predicted that the D.C. Circuit in Cross Refined Coal would rule for the taxpayer, holding that a business venture that was guaranteed to be unprofitable pretax (and became profitable only after tax credits) could still be considered a bona fide partnership for federal income tax purposes. Similarly, the Chemoil dispute provides an opportunity to explore the relationship between the economic substance doctrine and unprofitable transactions that are rendered economically viable by tax credits.

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Avi-Yonah: Fixing Tax Law's APA Problem

Reuven S. Avi-Yonah (Michigan; Google Scholar), Fixing Tax Law's APA Problem, 177 Tax Notes Fed. 981 (Nov. 14, 2022):

In this article, Avi-Yonah examines the post-Mayo revolution that has occurred in the application of the Administrative Procedure Act to tax regulations, and he offers two solutions to the problem of using notice and comment for those regs.

The APA Tax Revolution
Since the Supreme Court decided in Mayo that tax regulations are subject to the Administrative Procedure Act’s notice and comment procedures because they are not always interpretive rules (as Treasury had previously believed), there has been a revolution in applying the APA to tax regulations. In many cases, courts have declared tax regulations and notices invalid because they either did not follow proper APA notice and comment procedures, or did not adequately take into consideration adverse comments received during the procedure.

This revolution was led to a significant extent by one academic — professor Kristin Hickman of the University of Minnesota Law School — who has repeatedly argued that all tax regulations issued under section 7805 are legislative and therefore must be adopted through notice and comment [Coloring Outside the Lines: Examining Treasury's (Lack of) Compliance with Administrative Procedure Act Rulemaking Requirements, 82 Notre Dame L. Rev. 1727 (2007)].

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Call For Papers: 2023 Tax Notes Student Writing Competition

Tax Notes Student Writing Competition:

The 2023 submission period for the Tax Notes Student Writing Competition is now open! Each year we recognize superior student writing on unsettled questions in tax law or policy. Learn more about the competition guidelines:

• Eligibility: The competition is open to any student enrolled in a law, business, or public policy program during the 2022-2023 academic year. Each student may submit only one paper. Coauthored papers will be accepted. 
• Format: Entries should be a minimum of 2,500 words and a maximum of 12,000 words, including footnotes. Citations should be formatted as footnotes in accordance with the latest edition of The Bluebook: A Uniform System of Citation. Bibliographies and reference lists are prohibited. Articles should be submitted as Microsoft Word documents.

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Taxation Of NFT Transactions

Michael Lukacs (EY, New York), Oren Margulies (EY, Washington, D.C.) & Lakshmi Jayanthi (EY Boston), ABCs of NFTs: Key Tax Considerations, 177 Tax Notes Fed. 819 (Nov. 7, 2022):

In this article, the authors explain what nonfungible tokens (NFTs) are, how various parties engage in NFT transactions, and how NFTs are exploited commercially, and they answer common questions about the taxation of NFT transactions — a subject on which there is no direct guidance.

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Cummings: Tax Exceptionalism Is Overblown

Jasper L. Cummings, Jr., Tax Exceptionalism Overblown, 177 Tax Notes Fed. 225 (Oct. 10, 2022):

In this article, Cummings argues that the concept of tax exceptionalism has been wildly overstated and used mostly by tax avoiders, and he contends that, unlike some good ideas, the concept isn’t worth overstating. ...

A large crop of professors, brief authors, and article writers have gleefully claimed that some amorphous malady they call “tax exceptionalism” is dead, citing Mayo’s statements about National Muffler. The claim serves as an all-purpose ground for winning most any argument with the IRS. The flaws in their scholarship might be overlooked if they weren’t so darn happy about it. They all seem delighted to assert that the IRS and Treasury were taken down a peg by the Mayo opinion, often without noticing that Mayo held for the IRS and applied Chevron deference to a Treasury regulation. So if you want to take the IRS down a peg, Mayo isn’t your best cite.

The professorial criticism of a claimed insularity of tax professionals didn’t begin with National Muffler or Mayo or even professor Kristin Hickman. It dates to at least the early 1990s, when Paul Caron penned “Tax Myopia, or Mamas Don’t Let Your Babies Grow Up to Be Tax Lawyers [13 Va. Tax Rev. 517 (1994).] ” Again, a catchy title coupled with amusing criticism of the sometimes-self-important group known as tax lawyers kicked off a season of derision for pastimes such as trying to discover the meaning of the code by reading legislative history. Caron was able to enlist professor Boris I. Bittker in his cause.

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Todd: Bitner And The FBAR’s Muddy Morass—Shining A Light With Interpretive Tools

Following up on this morning's post, WSJ: The IRS And The 8th Amendment:  Timothy M. Todd (Liberty), The FBAR’s Muddy Morass: Shining a Light With Interpretive Tools, 177 Tax Notes Fed. 179 (Oct. 10, 2022):

In this report, Todd tackles the question of whether foreign bank account report penalties should apply per account or per form through unit-of-prosecution analysis and a survey of similar misstatement regimes.

Introduction
The Supreme Court has granted certiorari to resolve a circuit split over the proper interpretation of the Bank Secrecy Act’s penalty regime for foreign bank account report violations. The question presented is “whether a ‘violation’ under the Act is the failure to file an annual FBAR (no matter the number of foreign accounts), or whether there is a separate violation for each individual account that was not properly reported.” In other words, does an FBAR violation result from each failure to report a particular foreign bank account, or does a violation result from the singular failure to file an FBAR for the year, regardless of the accounts at issue?

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Kamin: The Ambition, Limits, And Politics Of The Global Minimum Tax

David Kamin (NYU), Why Book Minimum Taxes? Taking Politics Seriously, 177 Tax Notes Fed. 193 (Oct. 10, 2022):

In this article, Kamin explores the political and institutional challenges that the book minimum tax seeks to address, and he concludes that the case for it in the international context is strongest even though it has been used to overcome detrimental interest-group politics in the domestic context. ...

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2022 Tax Notes Student Writing Competition Winner: The Intersection Of Tax And The Art Market

Arielle Zhivko (J.D. 2024, Osgoode Hall), Concealed Masterpieces: The Intersection of Taxation and the Art Market, 176 Tax Notes Fed. 2075 (Sept. 26, 2022) (1st Place: Tax Notes Student Writing Competition):

In this article, Zhivko explores how the collection of art has morphed into a highly appealing outlet for tax evasion and avoidance and examines the evolution of art-related tax reforms and their adverse effects. She also weighs the global justice aspects of taxation and subsidies against the need for access to educational and cultural materials provided by art and museums.

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Blue J Predicts: Tax Credits That Bond A Partnership

Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal) & Bettina Xue Griffin (Senior Legal Research Associate, Blue J Legal), Tax Credits That Bond a Partnership: Revisiting Cross Refined Coal, 176 Tax Notes Fed. 2069 (Sept. 26, 2022):

In this article, Alarie and Griffin revisit Cross Refined Coal, a case for which they used Blue J’s analytical software to successfully predict in June 2021 that the IRS’s appeal would be decided in favor of the taxpayer.

In our monthly Blue J Predicts column, we use Blue J’s tax research software to analyze pending or recently decided federal income tax cases. This month we consider the judgment of the D.C. Circuit in Cross Refined Coal, which addressed whether a business venture that was guaranteed to be unprofitable pretax could still be considered a bona fide partnership for federal income tax purposes. ...

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Gamage & Shanske: Phased Mark-To-Market For Billionaire Income Tax Reforms

David Gamage (Indiana; Google Scholar) & Darien Shanske (UC-Davis; Google Scholar), Phased Mark-to-Market for Billionaire Income Tax Reforms, 176 Tax Notes Fed. 1875 (Sept. 19, 2022):

In this installment of Academic Perspectives on SALT, Gamage and Shanske advocate for phased mark-to-market as a mechanism for reforming the taxation of investment gains of billionaires and megamillionaires. ...

Conclusion
As the recent passage of the federal Inflation Reduction Act (H.R. 5376) demonstrates, one never knows when the stars might align for a policy proposal.

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Mason: A Wrench In The GLOBE's Diabolical Machinery

Ruth Mason (Virginia; Google Scholar), A Wrench in the GLOBE's Diabolical Machinery, 99 Tax Notes Int'l 1391 (September 19, 2022):

In this article, Mason explains how the global anti-base-erosion rules induce cooperation by states, and how the proposal to enact those rules via a directive in the European Union undermines that inducement to cooperate.

Conclusion
This no-exit quality of the GLOBE rules motivated commentators at the International Fiscal Association to describe it as devilish and diabolical. No state can escape its logic or after adoption reaches a critical mass its reach. It trips states of an effective means of defection rom the cooperative outcome.

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Sanchirico: Digital Services Taxes This Time Around

Chris William Sanchirico (Penn; Google Scholar), Digital Services Taxes This Time Around, 176 Tax Notes Fed. 2041 (Sept. 26, 2022):

The United States currently has an effectively exclusive taxing right on the high-tech foreign profits of its multinationals — a right it leaves largely unexercised. This has been unacceptable to U.S. trading partners for some time. On the other hand, recent reform proposals from the OECD are unacceptable to a decisive faction of U.S. legislators. This article proposes a more modest resolution to the conflict that, although far from ideal, might actually have a chance of meeting the main concerns of both skeptical U.S. lawmakers and exasperated U.S. allies.

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McMahon: Taxing Prison Work

Stephanie Hunter McMahon (Cincinnati), Prison Work Is Taxing and Should Be Taxed, 176 Tax Notes Fed. 1585 (Sept. 5, 2022):

In this article, McMahon advocates for Congress to enact when possible, and otherwise to push for, an expansion of the social safety net for prison labor on terms consistent with that for non-incarcerated workers, taking into account the prison context.

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Avi-Yonah: Medtronic II And The Profit-Shifting Problem

Reuven S. Avi-Yonah (Michigan; Google Scholar), Medtronic II and the Profit-Shifting Problem, 176 Tax Notes Fed. 1575 (Sept. 5, 2022):

In this article, Avi-Yonah looks at the Tax Court’s recent Medtronic II [v. Commissioner, T.C. Memo. 2022-84 (Aug. 18, 2022)] decision and considers how the new corporate alternative minimum tax may provide a solution to the problem of adjudicating transfer pricing in the absence of comparables.

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Blue J: Deducting Legal Expenses In Mylan

Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal) & Kim Condon (Senior Legal Research Associate, Blue J Legal), Deducting Legal Expenses: Unpacking the IRS's Appeal in Mylan, 176 Tax Notes Fed. 1419 (Aug. 29, 2022):

In this article, Alarie and Condon use machine-learning models to evaluate the strength of the IRS’s argument that the Tax Court in Mylan [v . Commissioner, 156 T.C. 137 (2021)], erred in holding that a generic drug manufacturer is not required to capitalize litigation expenses incurred in defending against patent infringement suits and instead may deduct them as ordinary and necessary business expenses.

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Borden: Fixed-Price Put Options Undermine Section 1031 Treatment Of Tenant-in-Common Interests

Bradley T. Borden (Brooklyn; Google Scholar), Fixed-Price Put Options Undermine Section 1031 Treatment of Tenant-in-Common Interests, 175 Tax Notes Fed. 1989 (June 27, 2022):

This article provides a detailed analysis of tenancy-in-common arrangements and shows how fixed-price put options to sell such interests undermine the classification of such arrangements as tenancies-in-common for federal income tax purposes. The article is reminder that there are limits to the types of terms that co-owners can adopt when they structure tenancies-in-common.

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McMahon: Using The Tax System To Ease Some Of The Dobbs Hardship

Stephanie Hunter McMahon (Cincinnati), Using the Tax System to Ease Some of the Dobbs Hardship, 176 Tax Notes Fed. 1105 (Aug. 18, 2022):

Through Dobbs, the Supreme Court has ensured that many women throughout this country won’t have access to abortion in their home states. Even before Dobbs, however, many states had extremely limited access to this medical care. For many women to exercise their fundamental human right to abortion and attendant healthcare, it has been necessary that they travel sometimes hundreds of miles and often pay significant sums. That cost is an economic hardship in addition to the other hardships imposed by states that refuse to recognize a woman’s right to an abortion.

This article doesn’t have an answer for the Dobbs decision; it merely provides information about the resources in the IRC to help those with limited access to abortion.

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Shaheen: Whirlpool — Law Or Policy?

Fadi Shaheen (Rutgers; Google Scholar), Whirlpool: Law or Policy?, 176 Tax Notes Fed. 959 (Aug. 8, 2022):

In this article, Shaheen argues that while two U.S. courts reached the desirable policy result in the Whirlpool case [Whirlpool Financial Corp. v. Commissioner, 154 T.C. 142 (2020), aff’d, No. 13986-17 (6th Cir. 2021)], their conclusion that the foreign base company sales income branch rule applies not only to sales branches but also to manufacturing branches is inconsistent with the statutory text.

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Avi-Yonah & Wells: Pillar 2 And The Corporate AMT

Reuven Avi-Yonah (Michigan; Google Scholar) & Bret Wells (Houston; Google Scholar), Pillar 2 and the Corporate AMT, 176 Tax Notes Fed. 953 (Aug. 8, 2022):

In this article, Avi-Yonah and Wells argue that the corporate alternative minimum tax proposed in the Inflation Reduction Act of 2022 would put the United States in a better position than current law, and arguably even better than would a tax reform package that included a conforming global intangible low-taxed income regime but no book-based corporate minimum tax.

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Ordower: Block Rewards, Carried Interests, And Other Valuation Quandaries In Taxing Compensation

Henry Ordower (St. Louis; Google Scholar), Block Rewards, Carried Interests, and Other Valuation Quandaries in Taxing Compensation, 175 Tax Notes Fed. 1551 (June 6, 2022):

In this article, Ordower contextualizes block rewards litigation with historical failures to tax compensation income paid in kind. Tax fairness principles demand current taxation of the noneconomically diluting block rewards’ market value.

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Blue J: Accurate Financial Recordkeeping And Business Deductions

Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal) & Kathrin Gardhouse (Legal Research Associate, Blue J Legal), Situational Awareness: Accurate Financial Recordkeeping and Business Deductions, 176 Tax Notes Fed. 713 (Aug. 1, 2022):

In this article, Alarie and Gardhouse explore the Tax Court decision in Skolnick [v. Commissioner, T.C. Memo. 2021-139 (Dec. 16, 2021)], which emphasizes the importance of keeping accurate financial records for activities that may be subject to IRS scrutiny regarding their business nature.

Conclusion
The Tax Court decision in Skolnick emphasizes the importance of keeping accurate financial records of activities that may be subject to IRS scrutiny regarding their business nature. Whether this is the case can be most easily determined with a machine-learning tool such as Blue J’s section 162 trade or business predictor.

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The Tax Treatment Of The Metaverse Economy And The Potential For A New Offshore Tax Haven

Jeffrey Owens & Nathalia Oliveira Costa (Vienna University of Economics & Business), The Tax Treatment of the Metaverse Economy and the Potential for a New Offshore Tax Haven, 176 Tax Notes Fed. 657 (Aug. 1, 2022):

In this article, Owens and Oliveira Costa consider how the development of the metaverse, cryptocurrencies, and non-fungible tokens could fundamentally change established tax concepts and the way tax compliance functions.

Future Research
The metaverse, with its unimaginable potential, will continue to be the subject of a complex and wide-ranging discussion. Virtual worlds are still part of our physical world and, as such, they must be subject to laws, taxes, and rules. This article merely scratches the surface of some of the metaverse’s tax challenges, and there are more questions than answers.

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Avi-Yonah & Gamage: Billionaire Mark-To-Market Reforms

Reuven Avi-Yonah (Michigan; Google Scholar) & David Gamage (Indiana; Google Scholar), Billionaire Mark-to-Market Reforms: Response to Susswein and Brown, 176 Tax Notes Fed. 555 (July 25, 2022):

In their essay, Is It Time to Tax Disney’s Unrealized Capital Gains From 1965?, [176 Tax Notes Fed. 1717 (June 13, 2022),] Donald B. Susswein and Kyle Brown argue that a mark-to-market reform like the recent proposals for billionaire income tax reforms would amount to double taxation. We explain here why their arguments are incorrect. Instead, the primary impact of enacting a billionaire income tax reform would be to close the loopholes and combat the harmful political-optionality dynamics that enable many billionaire and megamillionaire taxpayers to fully and permanently escape income taxation on the majority of their true investment gains.

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ABA Tax Section|Tax Analysts Public Service Tax Fellowship Application Deadline Extended

ABA Tax Section has extended the application deadline to August 15 for the Tax Analysts Public Service Fellowship:

The ABA Tax Section and Tax Analysts (the publisher of Tax Notes) have partnered to launch a new public interest fellowship to start this September. Tax Analysts Public Service Fellows will be funded by Tax Analysts to work for two years practicing public interest tax law. The fellowship is geared toward either those with an LLM in tax or experienced attorneys including those seeking to move into the public interest sector. The inaugural fellow will work at La Posada Tax Clinic in Twin Falls, Idaho. You can learn more about Bob Wunderle, who runs La Posada, and his important work providing a range of tax services to vulnerable populations including farm workers throughout the state of Idaho in this podcast from Tax Notes. Applications are due August 15 – the application and more information are available here.

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No New Tax Cuts? Examining The Rescue Plan's New State Tax Limits

Conor Clarke (DOJ; Google Scholar) & Edward G. Fox (Michigan; Google Scholar), No New Tax Cuts? Examining the Rescue Plan's New State Tax Limits, 103 Tax Notes St. 1361 (Mar. 28, 2022):

In this article, Clarke and Fox examine the American Rescue Plan Act’s restrictions on state tax cuts, arguing that the restrictions are a variation on more familiar maintenance-of-effort provisions. These provisions are common, and are designed to help ensure that federal grants supplement rather than supplant state spending by requiring the state to maintain its level of spending on a program. Clarke and Fox conclude that the Rescue Plan’s requirements create similar incentives, and argue that the similarity makes it more likely that the act’s tax provisions are consonant with the Constitution’s spending clause.

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Mason & Knoll: The Dormant Foreign Commerce Clause After Steiner

Ruth Mason (Virginia; Google Scholar) & Michael S. Knoll (Pennsylvania) have published two abbreviated versions of their article in Volume 39, No. 3 of the Virginia Tax Review, The Dormant Foreign Commerce Clause After Wynne, 39 Va. Tax Rev. 357 (2020):

Why the Supreme Court Should Grant Certiorari in Steiner v. Utah, 95 Tax Notes State 377 (Feb. 3, 2020):

In this article, the authors urge the U.S. Supreme Court to grant certiorari in Steiner v. Utah to clarify the scope of the dormant foreign commerce clause and the role of the internal consistency test as a doctrinal tool for identifying commerce clause violations by the states.

Steiner v. Utah: Designing a Constitutional Remedy, 95 Tax Notes St. 845 (Mar. 9, 2020):

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Borden: Fixed-Price Put Options Undermine Section 1031 Treatment Of Tenant-In-Common Interests

Bradley T. Borden (Brooklyn; Google Scholar), Fixed-Price Put Options Undermine Section 1031 Treatment of Tenant-in-Common Interests, 175 Tax Notes Fed. 1989 (June 27, 2022):

A fixed-price put option held by a co-owner on an undivided interest in real property causes the undivided interest to lose its TIC status for federal income tax purposes. That option, if offset by a call option, may also signal an intent to sell the underlying property, resulting in the interest being held primarily for sale or resulting in tax ownership residing with the holder of the call option.

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Blue J: Reserve Mechanical Microcaptive Insurance Arrangement Denied On Appeal

Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal) & Bettina Xue Griffin (Senior Legal Research Associate, Blue J Legal), Reserve Mechanical: Microcaptive Insurance Arrangement Denied on Appeal, 175 Fed Tax Notes 2037 (June 27, 2022):

In this article, Alarie and Griffin explore the relative merits and prospective strengths of three of the grounds of appeal advanced by the taxpayer in Reserve Mechanical.

In our monthly Blue J Predicts column, we use tax research software to analyze pending or recently decided federal income tax cases. This month we analyze the judgment of the Tenth Circuit in Reserve Mechanical [T.C. Memo. 2018-86], which addressed whether a microcaptive insurance arrangement constituted insurance so that the premiums received were exempt from taxation under section 501(c)(15). 

Several months ago, we examined the Tax Court’s decision in Reserve Mechanical and predicted with 77 percent confidence that the taxpayer’s appeal would be dismissed and the Tax Court’s decision affirmed [Captive Insurance Appeal in Reserve Mechanical Will Likely Fail, 172 Tax Notes Fed. 1431 (Aug. 30, 2021)] That prediction was correct [Reserve Mechanical Corp. v. Commissioner, No. 18-9011 (10th Cir. May 13, 2022)].

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Marian: The Taxation Of Block Rewards

Omri Marian (UC-Irvine; Google Scholar), Law, Policy, and the Taxation of Block Rewards, 175 Tax Notes Fed. 1493 (June 6, 2022):

This report addresses the taxation of block rewards — the rewards offered to validators of blockchain transactions in exchange for maintaining the public blockchain ledger. The main question the report seeks to answer is whether newly minted cryptocurrencies (a component of block rewards) are taxable upon receipt. Some commentators have suggested that there is legal ambiguity about whether block rewards are taxable upon receipt because of the novelty of the blockchain technology. There is no such ambiguity. Block rewards are clearly taxable upon receipt under current law.

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Avi-Yonah & Salaimi: A New Framework For Taxing Cryptocurrencies

Reuven Avi-Yonah (Michigan; Google Scholar) & Mohanad Salaimi (S.J.D. 2022, Michigan), A New Framework for Taxing Cryptocurrencies, 175 Tax Notes Fed. 1391 (May 30, 2022):

In this article, Avi-Yonah and Salaimi propose a new framework for taxing cryptocurrency throughout its life cycle. This article summarizes Avi-Yonah and Salaimi, A New Framework for Taxing Cryptocurrencies (Mar. 31, 2022).

This article describes a proposal to tax cryptocurrencies based on their unique features.1 It argues that while various ways of earning or receiving crypto tokens (for example, mining in proof-of-work (PoW) protocols like bitcoin and staking in proof-of-stake (PoS) protocols like ether) generate taxable income, the tax results should take into account positive and negative externalities. It also claims that because of its volatility, crypto should not be taxed until tokens are exchanged for real-world items like fiat currency or goods and services. Finally, this article argues that when crypto tokens are exchanged for fiat currencies or goods and services, they should be treated as foreign currency if held for less than one year. ...

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Blue J's AI Prediction Of Result Of Tax Court Appeal Faces First Test In Federal Circuit Court

Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal) & Christopher Yan (Senior Legal Research Associate, Blue J Legal), Disguised Distributions and Management Fees: Aspro Revisited, 175 Tax Notes Fed. 1401 (May 30, 2022):

In this article, Alarie and Yan analyze the Eighth Circuit’s recent decision in Aspro concerning the deductibility of management fees the business paid to its shareholders.

In our Blue J Predicts column we use advances in machine learning to analyze pending or recently decided federal income tax cases. This month we follow up on the appeal of a Tax Court decision that we first examined in October 2021. In Aspro, the taxpayer challenged the IRS’s determination that the “management fees” it paid were not deductible because they were disguised corporate distributions of profits. Our initial analysis focused on the pending appeal and on April 26 the Eighth Circuit released its opinion, upholding the Tax Court’s decision. This is the first time a case we have examined in Blue J Predicts has been decided by an appellate court since we began the column in mid-2021.

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ABA Tax Section|Tax Analysts Public Service Tax Fellowship

ABA Tax Section, Tax Analysts Public Service Fellowship:

In response to a need for tax legal assistance for low-income taxpayers, to foster a greater interest in tax-related public service, and to provide seasoned attorneys the opportunity to move into the public interest sector, the ABA Tax Section is pleased to announce a partnership with Tax Analysts to launch the Tax Analysts Public Service Fellowship.

This two-year fellowship offers practicing tax attorneys the opportunity to work in public interest tax law with a nonprofit organization or government entity. For the initial year, the fellow will be based at La Posada Tax Clinic in Twin Falls, Idaho. This powerful nonprofit provides extensive free tax services throughout the state of Idaho.

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Colella: Crispino Upholds IRS Mailbox Rule Reg

Frank G. Colella (Pace), ‘But I Mailed It’ — Crispino Upholds IRS Mailbox Rule Regulation, 173 Tax Notes Fed. 1479 (Dec. 13, 2021):

In Crispino, the U.S. District Court for the District of New Jersey held that taxpayers cannot introduce extrinsic evidence under the common law mailbox rule to establish timely filing of their claim for refund and, accordingly, dismissed the refund action for lack of jurisdiction. Crispino, a decision appealable to the Third Circuit, upheld the IRS’s position that the only means to satisfy section 7502, the statutory “mailbox rule,” is by proper compliance with reg. section 301.7502- 1(e)(2), which requires proof of certified or registered mailing when the IRS alleges that it has not received a document.

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Louis Brandeis, Antitrust, And A Functioning Tax System

Jasper L. Cummings, Jr. (Alston & Bird, Raleigh, NC), Louis Brandeis, Antitrust, and a Functioning Tax System, 175 Tax Notes Fed. 241 (Apr. 11, 2022):

In this article, Cummings wonders what happened to Justice Louis Brandeis’s approach to deciding federal tax cases and whether it has anything to do with antitrust policy. ...

Justice Louis D. Brandeis was one of that small group of justices who wore the “tax wreath” during his tenure on the Supreme Court from 1916 to 1939. The chief justices assigned him the routine opinions in tax cases, which usually involved complex business arrangements or difficult but small-bore interpretational issues, or both. His fellow justices honored him by almost never dissenting or even concurring, and the few times they did, never writing a rebuttal to his reasoning.

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Sanchirico: Should A Global Minimum Tax Be Country-By-Country?

Chris William Sanchirico (Penn; Google Scholar), Should a Global Minimum Tax Be Country-by-Country?, 175 Tax Notes Fed. 549 (Apr. 25, 2022):

In this report, Sanchirico questions the consensus view that a country-by-country approach to global minimum tax design is superior to one based on across-country averaging.

Conclusion
This report shows in the context of a simple game theoretic model that a global minimum tax regime that operates on a country-by-country basis is not necessarily superior to one that is based on global averaging — at least not from the perspective of the high-tax jurisdictions spearheading reform.

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Blue J Predicts With 86% Confidence Debt-Equity Decision In Tribune Media

Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal) & Kathrin Gardhouse (Senior Legal Research Associate, Blue J Legal), The Debt-Equity Distinction and Tribune Media, 175 Tax Notes Fed. 593 (Apr. 25, 2022):

In this article, Alarie and Gardhouse use the Blue J debt-equity predictor to analyze part of the Tax Court’s recent decision in Tribune Media [v. Commissioner, T.C. Memo. 2021-122 (Oct. 26, 2021)]. ...

Common law debt-equity characterization depends on the synthesis of more than a dozen factual and circumstantial elements. In real-world situations, with so many considerations in play, ambiguity is endemic. The threshold challenge for taxpayers, the IRS, and, ultimately, the courts is to determine the most appropriate characterization for a given financing, all things considered.

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Rosenbloom: The Branch Rule Of Subpart F

H. David Rosenbloom (Caplin & Drysdale; NYU), The Branch Rule: An Unhurried Read of the Statute, 175 Tax Notes Fed. 87 (Apr. 4, 2022):

In this article, Rosenbloom considers the language of the branch rule of subpart F and whether it should apply to both sales and manufacturing branches.

No one is likely to nominate the IRS for a writing award, but some of the Internal Revenue Code’s provisions are especially perplexing. One such provision is the branch rule of subpart F, found in section 954(d)(2):

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