Weekly SSRN Tax Article Review And Roundup: Kim Reviews Holderness' Tax Relief for Commuters

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Hayes Holderness (Richmond), Changing Lanes: Tax Relief for Commuters, 40 Va. Tax Rev. ___ (2021).

Commuting has mixed motives: one must travel to get to work (business motive), but the extent and burden of the travel is the result of the personal choice about where to live (personal motive). However, there is no middle ground under the tax law; an expense is classified as either personal or business. Under current law, it is well established that commuting expenses are personal, and thus, nondeductible expenses under the tax law (e.g., Comm'r v. Flowers, 326 U.S. 465 (1946)). However, in the wake of COVID-19, working from home has become the new normal. Many people who used to commute to work no longer have the same amount of expenditure for commuting, such as gas and metro passes. What are the normative implications of such changed behavior? Hayes Holderness offers his views in his recent essay, Changing Lanes: Tax Relief for Commuters (forthcoming in Va. Tax Rev.).

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Hayashi's Dynamic Property Taxes And Racial Gentrification

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by Andrew T. Hayashi (UVA), Dynamic Property Taxes and Racial Gentrification (2020).

Four decades after California’s Prop 13 and the Tax Revolt it instigated, we are still unraveling the downstream consequences of property tax limits. Andrew Hayashi explores yet another unanticipated, if not surprising, consequence of property tax assessment limits in the context of gentrification. Combining theoretical reasoning with empirical data from Maryland, his approach is thoughtful and nuanced, reflecting the multilayered complexity underlying the economic and social processes at play.

The crux of his reasoning is the following. Property taxes are based on a property’s assessed value, which often differs from its market value. A relatively lower assessed value means a lower “effective tax rate” (ETR), since the ETR is measured against market value. Tax limits play an important role by limiting the government’s ability to assess properties at their market value, either imposing a maximum increase percentage or requiring that increases be phased-in over time. Regardless of the form, these limits cause lower ETRs for properties that are increasing in value compared to properties with stable or declining values. The more rapid the appreciation, the more pronounced the ETR gap.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Tax Benefits, Higher Education and Race By Crawford & Gerzog

This week, Mirit Eyal-Cohen (Alabama) reviews Bridget J. Crawford (Pace) and Wendy C. Gerzog (Baltimore), Tax Benefits, Higher Education and Race: A Gift Tax Proposal for Direct Tuition Payments (Dec. 2020):

Amid recent nationwide protests and public condemnation of systemic racism, Americans are divided on whether this focus on the race and inequality gap will actually lead to major policy change. This product of collaboration between renowned tax crit Bridget Crawford and gift and estate tax expert Wendy Gerzog yields not only an admirable scholarly inquiry into the correlation between tax, race, and higher education, but also a practical proposal for policy reform to reduce race-based economic inequality. Using the case study of gift tax exemption for direct tuition payments, the Authors illustrate the ways tax rules can aggravate the racial wealth gap and put together a primer to fix the advantage most affluent taxpayers in the U.S. receive through educational tax benefits.  

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Tax Policy And Pharmaceutical Innovation By Eyal-Cohen & Rutschman

This week, David Elkins (Netanya) reviews a recently posted work by Mirit Eyal-Cohen (Alabama) & Ana Santos Rutschman (St. Louis), Tax Policy and Pharmaceutical Innovation (2020):

With so much of the world’s attention this year focused on the COVID-19 pandemic, it is little wonder that tax scholars too have waded into the breach. A quick search on SSRN turns up no less than 146 articles containing the key words “COVID” and “tax.” However, most of these articles are concerned either with the tax implications of the current pandemic or with what the government should do within the field of taxation in light of the economic havoc created by the virus and by the shutdowns and other measures instituted in an attempt to keep it at bay. This week’s article, co-authored by a tax law scholar and a public health law scholar, takes a step back and asks how the tax system can help prevent the next pandemic.

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Nadler's Tax-Motivated Trading And Price Efficiency

This week, Sloan Speck (Colorado) reviews a new work by Hillel Nadler (Program on International Financial Systems), The Only Sure Alpha: Tax-Motivated Trading and Price Efficiency (Aug. 12, 2020).

In The Only Sure Alpha: Tax-Motivated Trading and Price Efficiency, Hillel Nadler examines tax-motived trading in financial instruments from a novel and compelling perspective: the ways in which tax rules affect the process of price discovery in otherwise well-functioning markets. Nadler argues that tax considerations may drive “noisy trading”—trading that moves prices away from an equilibrium based on non-tax information. Although markets (eventually) should resolve these deviations of price from fundamental value, Nadler notes that the noise itself may have significant and detrimental systemic effects. Transitions to equilibrium matter, and taxation may cause distortions that leave financial markets in a constant state of low-level flux.

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Weekly SSRN Tax Article Review And Roundup: Layser Reviews Polsky's The Impact Of The 2017 Tax Act On Personal Injury Plaintiffs

This week, Michelle Layser (Illinois) reviews Gregg D. Polsky (Georgia), The Impact of the 2017 Tax Act on Certain Personal Injury Plaintiffs, 12 Colum. J. Tax L. ___ (2021).

Between spiking COVID rates and election drama, it can be easy to forget that just a few years ago—before 2020 somehow stopped the passage of time—the country was rocked by the #MeToo movement. The 2017 movement,^[1] which emboldened women across the world to use social media to signal that they had experienced sexual harassment or assault using the hashtag #MeToo, was spurred by highly public sexual-abuse allegations against film producer Harvey Weinstein.

Since everything has a tax angle, the #MeToo movement made its mark on the 2017 Tax Cuts and Jobs Act in the form of a new rule 162(q), which is informally known as the Harvey Weinstein rule. The rule disallows taxpayers’ deductions for settlement payments related to sexual harassment or sexual abuse cases when the settlement is subject to a nondisclosure agreement (NDA). Seems like a win for the movement, right? Maybe not. In a new article, Professor Gregg Polsky argues that the Harvey Weinstein rule—no matter how well intended—may actually harm sexual assault plaintiffs.

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Choi's How Does Chevron Shape Agency Rulemaking?

This week, Hayes Holderness (Richmond) reviews Jonathan H. Choi (Minnesota), How Does Chevron Shape Agency Rulemaking? An Empirical Study, 38 Yale J. Reg. ___ (2021):

One would be hard-pressed to find a tax lawyer without knowledge of 1984’s Chevron case, which established a deferential standard for judicial review of agency rulemaking—as long as the rule is a reasonable interpretation of an ambiguous statute, courts should defer to the judgment of the agency. Most tax lawyers presumably also are familiar with 2011’s Mayo decision, which affirmed that tax regulations were subject to the same Chevron standard as regulations in other areas of law. Until Mayo, tax was assumed to be exceptional in this realm, with certain regulations entitled to less deference than Chevron would have provided.

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Weekly SSRN Tax Article Review And Roundup: Kim Reviews The Apple State Aid Case By Daly & Mason

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Ruth Mason (Virginia) and Stephen Daly (King's College London), State Aid: The General Court Decision in Apple, 99 Tax Notes Int’l 1317 (Sept. 7, 2020), also published as 168 Tax Notes Fed. 1791 (Sept. 7, 2020).

The recent court case Apple (the full text of the judgement is available here) revolves around an EU doctrine known as “state aid.” Under the state aid principle, member states are prohibited from subsidizing favored actors or industries in the form of, e.g., tax treatment or benefits. Unless the reader is an expert in international tax, the reader might find the details of the Apple case to be overwhelming and difficult to understand because Apple is also a hardcore transfer pricing case. However, for those who are interested in Apple and would like to understand the technical aspects as well as a big picture of the case, I would like to recommend State Aid: The General Court Decision in Apple by Ruth Mason (Virginia) and Stephen Daly (King's College London), published in 99 Tax Notes Int’l 1317 (Sept. 7, 2020), also published as 168 Tax Notes Fed. 1791 (Sept. 7, 2020). The first half of the article offers the summary of the recent decision by the General Court of the European Union (GCEU), and the second half offers the authors' commentary.

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Weekly SSRN Tax Article Review And Roundup: Roberts Reviews Holderness's Insidious Regulatory Taxes

This week, Tracey Roberts (Cumberland) reviews a recently posted work by Hayes Holderness (Richmond), Insidious Regulatory Taxes.

In Insidious Regulatory Taxes, Hayes Holderness takes issue with state legislatures’ use of taxes to regulate individual behavior. He clarifies that regulatory taxes are “insidious” when a state legislature chooses to use a tax in order to avoid the level of state and federal constitutional scrutiny imposed on direct regulation. Federal and state courts have generally deferred to legislatures on tax matters because the U.S. Constitution and state constitutions grant legislature the “power of the purse.” Judicial attempts to curtail this power may be viewed as a violation of the separation of powers doctrine. Holderness argues that while judicial deference may be appropriate when the legislators’ goals are to raise revenue, that deference is not justified when legislators are acting with a regulatory purpose and when their goal in using a tax is to skirt the level of scrutiny applied to direct regulation.

 

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Strategic Nonconformity To The TCJA

This week, Ariel Jurow Kleiman (San Diego) reviews a two-part essay, Strategic Nonconformity to the TCJA, Part I: Personal Income Taxes, 97 Tax Notes State 17 (July 6, 2020), by Adam Thimmesch (Nebraska), Darien Shanske (Davis), and David Gamage (Indiana); and Strategic Nonconformity, State Corporate Income Taxes, And the TCJA: Part II, 97 Tax Notes State 123 (July 13, 2020), by Darien Shanske, Adam Thimmesch, and David Gamage.

No one reading this review will be surprised to hear that states need cash. They need it to fund vital public services and to shore up coffers eviscerated by the economic fallout of the pandemic. While borrowing and federal support are both logical revenue sources, state borrowing limits prevent deficit spending and aid to state and local governments has been a major sticking point in federal stimulus talks. For the foreseeable future, states may be on their own.

Well, not entirely on their own. They do have some very able tax law scholars to help them navigate these rocky fiscal shoals. In this two-part essay, Adam Thimmesch, Darien Shanske, and David Gamage offer several ways that states can raise revenue during the current crisis. Part of a larger effort called Project SAFE (State Action in Fiscal Emergencies), this two-part installment considers how states’ tax laws should or should not conform with changes enacted in the Tax Cuts and Jobs Act (TCJA).

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Lunney's The Copyright Tax

This week, Mirit Eyal-Cohen (Alabama) reviews Glynn S. Lunney, Jr. (Texas A&M), The Copyright Tax.

This empirical Article makes the claim that copyright should be viewed as a form of government-imposed tax and a government-provided subsidy. Although Lord Thomas Babington Macaulay of the House of Commons had made this claim almost 180 years ago, the author reiterates it by examining the scope of such tax and comparing consumer price increases in copies of popular books and public transmissions of sound recordings. He observes the Amazon prices of top 250 books written in the 19th century and in the 21st century and the analog v. digital (Kindle) prices of these books on Amazon. The 19th century book market was unregulated allowing free entry so multiple publishers could offer paper or electronic books while the 21st century book market has been subject to copyright regulation that restricted entry. This empirical study aspires to provide insights on the scope of the “copyright tax”, its incidence, and the return that end users receive.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Duff's General Anti-Avoidance Rules Revisited

This week, David Elkins (Netanya) reviews a recently posted work by David G. Duff (British Columbia), General Anti-Avoidance Rules Revisited, 68 Can. Tax. J. 579 (2020):

It is no secret that tax legislation is extraordinary complex. Part of the reason is the subject matter itself. Economic reality and legal doctrines do not necessarily coincide, and when they do not then taxpayers frequently can exploit the mismatch to achieve beneficial tax results. One of the swords that administrators wield to combat this phenomenon is the general anti-avoidance rule (GAAR). The question of the limits to which taxpayers may go to lower their tax liability was originally – at least in common law countries – a product of judicial doctrine. Today many countries have codified the rule or at least certain key elements of it (the closest the United States has to a statutory GAAR is IRC §7701(o), which clarifies the judicial economic substance doctrine). However, whether codified or not, GAARs by their nature are problematic. They call upon the courts to ignore the express words of the statute to prevent tax avoidance. However, one would have to be extraordinarily naïve to believe that taxpayers do not routinely structure their affairs in response to tax rules. Thus the question of when it is legitimate to invoke a GAAR is not a simple one.

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Brunson's Georgia, The IRS, And The KKK

This week, Sloan Speck (Colorado) reviews a new work by Samuel D. Brunson (Loyola Chicago), Addressing Hate: Georgia, the IRS, and the Ku Klux Klan.

The Ku Klux Klan’s second iteration began at a time of transformation for the American fiscal state. As economists and politicians reoriented the federal tax system towards progressive income taxation, white ethnonationalists consolidated and organized around false and pernicious understandings of the historic hate group. In 1915, a new Klan emerged, claiming as many as four million members at its peak in 1924. As Sam Brunson argues in his important new article, Addressing Hate: Georgia, the IRS, and the Ku Klux Klan, the Bureau of Internal Revenue and the State of Georgia each played crucial roles in both facilitating the rise of the second Klan and hastening its formal demise in the mid-1940s. Brunson’s valuable work resonates in our current political climate, as contemporary supremacist groups claim privileges under state corporate law and the Internal Revenue Code. How we address these groups today should be informed by the important history that Brunson uncovers.

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Walker's Tax Complexity And Technology

This week, Hayes Holderness (Richmond) reviews David I. Walker (Boston University), Tax Complexity and Technology:

Tax preparation platforms like TurboTax and TaxAct offer taxpayers a (relatively) easy way to complete and file their tax returns. Tax preparation businesses like H&R Block similarly ease the burden on taxpayers of completing and filing tax returns; those businesses also use technology to provide their services. Cumulatively, over 90% of individual taxpayers do their taxes with the help of these platforms or businesses, as opposed to filling out the returns themselves. Technology appears to be a tax simplification salve for the vast majority of individual taxpayers.

Not quite so fast, argues David Walker, in his draft article, Tax Complexity and Technology. While technology has undeniably simplified the return process for many, it has also helped mask the inner workings of the tax laws. Tax preparation platforms and businesses can operate like “black box” algorithms: just plug in the data and get a nice round number; don’t worry about how the number is reached. These black boxes allow for the complexity of the tax laws to grow.

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Weekly SSRN Tax Article Review And Roundup: Layser Reviews Shanske's How The States Can Tax Shifted Corporate Profits

This week, Michelle Layser (Illinois) reviews Darien Shanske (UC Davis), How the States Can Tax Shifted Corporate Profits: An Application of Strategic Conformity, 93 S. Cal. L. Rev. ___ (2020).

A dangerous consequence of the economic disruptions caused by the COVID-19 pandemic has been steep declines in state and local tax revenue. As is often the case during crisis periods, these revenue shortfalls have arrived at precisely the time when many residents are in dire need of a social safety net (see here and here).  Under the circumstances, Professor Darien Shanske observes that “it would be reasonable for states to contemplate inefficient—and even regressive—revenue-raising measures.” In a new Article, Shanske cautions against such an approach and offers what he says is a more efficient, more equitable alternative that is also relatively easy to administer.

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Weekly SSRN Tax Article Review And Roundup: Kim Reviews Is Unilateral Formulary Apportionment Better Than the Status Quo? By Fleming, Peroni & Shay

This week, Young Ran (Christine) Kim (Utah) reviews a new work by J. Clifton Fleming, Jr. (BYU), Robert J. Peroni (Texas), and Stephen E. Shay (Boston College), Is Unilateral Formulary Apportionment Better than the Status Quo?, in The Allocation of Multinational Business Income: Reassessing the Formulary Apportionment Option (Wolters Kluwer 2020).

It is always exciting to find a new international tax paper written by the famous cohort of authors—our learned Professors J. Clifton Fleming, Jr. (BYU), Robert J. Peroni (Texas), and Stephen E. Shay (Boston College). These authors can be trusted to provide insight into carefully selected topics relevant to current issues in international tax. In each paper, they demonstrate profound knowledge and experience in the chosen topic, and share thoughtful policy suggestions. The new book chapter, Is Unilateral Formulary Apportionment Better than the Status Quo?, in The Allocation of Multinational Business Income: Reassessing the Formulary Apportionment Option (Wolters Kluwer 2020), is not an exception. It provides a condensed analysis of the arm's length standard and the rise of formulary apportionment as an alternative. Additionally, the paper suggests criteria for the cost/benefit analysis of unilaterally adopted formulary apportionment in both territorial and worldwide system paradigms. Readers with advanced knowledge of international tax will find this chapter to be interesting, and, thanks to the authors’ mastery of the topic, the paper is also accessible to readers with only a basic knowledge of international tax. I highly recommend this paper to professors who are looking for reading material on transfer pricing.

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews U.S. Tax Systems Need Anti-Racist Restructuring

This week, Ariel Jurow Kleiman (San Diego) reviews Francine J. Lipman (UNLV), Nicholas A. Mirkay (Hawaii) & Palma Joy Strand’s (Creighton), U.S. Tax Systems Need Anti-Racist Restructuring, 168 Tax Notes Fed/State 855 (Aug. 3, 2020).

What might an “anti-racist” tax system look like? While those in the critical tax space have asked this question for some time, it seems that a larger community of tax legal scholars have more recently awakened to the importance of such considerations, sparked by the murders of George Floyd, Breonna Taylor, and others at the hands of police officers. Increasingly, tax professors are realizing that we do our students and our societies a disservice by ignoring how tax policies affect racial inequality—not to mention inequality based on gender, disability, immigration status, and the host of othernesses brandished to divide and oppress the most vulnerable among us.

Professors Francine Lipman, Nicholas Mirkay, and Palma Joy Strand’s recent article seizes this moment of awakening by calling upon those in privileged positions—which tax professors surely are—to raise questions about how our tax laws enshrine and perpetuate racial inequality. The article offers a birds-eye view of the racialized origins and racially disparate outcomes in our federal, state, and local tax systems. In doing so, it serves the important purpose of introducing critical tax and tax justice topics to those becoming newly aware of their importance.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Hayashi & Kleiman's Property Taxes During The Pandemic

This week, Mirit Eyal-Cohen (Alabama) reviews Andrew T. Hayashi (Virginia) & Ariel Jurow Kleiman (San Diego), Property Taxes During the Pandemic, 96 Tax Notes St. (June 22, 2020):

This important and timely Article puts a much-needed spotlight on cities and counties currently battling the pandemic on the front lines by providing essential services from healthcare to trash pickup with limited revenue sources.  State and local governments employ 20 million workers and contribute more than twice as much to national GDP as the federal government. Many public services such as firefighters, police, and public hospitals are largely funded at the local level. Thus, ensuring the continuation and stability of local government will also affect the pace of the economic recovery and the aftermath of the current pandemic. While emergency financing funds may be available to smaller cities and counties they are limited and short-termed.  In order to survive this crisis, localities need flexible tools and this Article attempts to do so.

Meanwhile, real property taxes make up nearly half of local government own-source revenues thus they play an important role in local governments’ responses recessions. 

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews McCaffery's The Property-Tax Bundle Of Rights

This week, David Elkins (Netanya) reviews a recently posted work by Edward J. McCaffery (USC), The Property-Tax Bundle of Rights:

In a highly ambitious and extremely well-written article, Prof. McCaffery takes us on a fascinating journey through the concept of property in law and legal thought from Ancient Rome to the present day. He argues that the modern conception of property rights as embodying complete dominion over a thing, including the right to destroy it, is a nineteenth century aberration that stands in stark contradiction to the seventeenth and eighteenth century liberal tradition. He focuses particular attention on John Locke, the titular godfather of private property. Many have noted that Lockean property rights are considerably more limited than is often claimed, as Locke expressly conditioned an individual’s exclusive rights in what had originally been the common property of all humankind on one leaving for others “enough, and as good” as one takes for oneself. McCaffery takes a more unusual approach. He points out that according to Locke, once one has acquired exclusive rights in a thing, one is obligated to preserve that thing for the good of the community as a whole. Allowing one’s “own” fruit to rot is impermissible and punishable. 

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Business Loss Deductions And The Pandemic

This week, Sloan Speck (Colorado) reviews new works by Steven Hodaszy (Robert Morris), Why the Antipathy Toward Business Loss Deductions Is Misguided, 167 Tax Notes Fed. 1863 (Jun. 15, 2020), and Clint Wallace (South Carolina), The Troubling Case of the Unlimited Pass-Through Deduction, 87 U. Chi. L. Rev. Online (2020).

On July 27, Senate Republicans released their proposal for the next pre-election round of pandemic stimulus legislation. The HEALS Act, which comprises eight smaller bills, represents the Republican response to the House Democrats’ HEROES Act, which passed the lower chamber in mid-May. The differences between these two legislative projects are legion. One such difference involves the “excess business loss” rules in § 461(l)—a matter of particular concern to certain taxpayers, lobbyists, affinity groups, and their elected representatives, as well as recent scholarly work by Steven Hodaszy and Clint Wallace.

The next two paragraphs offer a brief synopsis of § 461(l), omitting most of the social and political context but including many of the eye-glazing technical bits. In December 2017, the legislation known as the Tax Cuts and Jobs Act added § 461(l) to the Internal Revenue Code, presumably as a revenue offset for a miniscule portion of the law’s mammoth tax cuts. As enacted, § 461(l) disallowed certain single-year business losses that exceeded $250,000 or $500,000 for single individuals and joint filers, respectively. This limitation applied after the passive activity loss rules in § 469 and the at-risk rules in § 465, and any excess loss was rolled into subsequent years’ net operating loss carryforwards under § 172, as modified by the TCJA. Two items of note: this version of § 461(l) applied to a relatively small number of relatively well-off taxpayers, and a number of commentators interpreted § 461(l) as targeting the real estate sector.

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Mitigating Housing Instability During A Pandemic

This week, Hayes Holderness (Richmond) reviews Michelle D. Layser (Illinois), Edward De Barbieri (Albany), Andrew Greenlee (Illinois), Tracy Kaye (Seton Hall), & Blaine G. Saito (Northeastern), Mitigating Housing Instability During a Pandemic:

The COVID-19 pandemic continues to wreak havoc on people’s lives, both from a health perspective and an economic perspective. Congress is currently considering additional federal relief packages to support individuals across the country, and states and localities also weigh how they can help their people. Many have found these government responses lacking so far, and Michelle Layser, Ted De Barbieri, Andrew Greenlee, Tracy Kaye, and Blaine Saito add an important and powerful critique in their draft article: Not enough attention has been paid to housing instability (a particularly salient critique to yours truly, whose hometown carries the ignominious rank of second most evicting large city in the country). Policymakers would be wise to learn from the authors’ analysis and heed their advice.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Dagan's Re-Imagining Tax Justice In A Globalized World

This week, David Elkins (Netanya) reviews a recently posted work by Tsilly Dagan (Oxford, Bar-Ilan), Re-imagining Tax Justice in a Globalized World (2020):

In recent years, international taxation has moved to front and center stage. Once considered one of the more esoteric aspects of taxation, of interest to a few specialists and their clients, the field of international tax has drawn the attention of academics, politicians, the popular press, and international organizations. However, more often than not, those engaged in the discourse rely upon unexamined postulates and rehashed mantras that do little either to identify or to solve the serious challenges of taxation in a globalized world.

Tsilly Dagan is one of the rare breed of scholars who refuses to accept the conventional wisdom of international taxation and prefers to subject some of the field’s most well-entrenched principles to undogmatic scrutiny. In her current paper, she considers some of the challenges faced by countries in designing their tax policy, given the fact that taxpayers are no longer a captive audience over whom the sovereign state has virtually unlimited powers of coercion, but can freely choose where to reside and thus to which country’s tax regime to subject themselves.

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Gillis's Carbon Tax Shifts And Revenue-Neutrality

This week, Sloan Speck (Colorado) reviews a new work by Rory Gillis (Toronto), Carbon Tax Shifts and the Revenue-Neutrality Dilemma, 23 Fla. Tax Rev. 293 (2019).

In Carbon Tax Shifts and the Revenue-Neutrality Dilemma, Rory Gillis deconstructs the concept of revenue neutrality as applied to Pigouvian carbon taxes. These carbon taxes are, of course, price instruments, and their behavioral effects—the raison d’être of the taxing scheme—generally don’t depend on the specific use of any funds generated. But, as Gillis notes, the political viability of these carbon taxes often hinges on (typically vague) promises of “revenue neutrality,” which means (somewhat naïvely) that every dollar raised by a carbon tax will be offset by one dollar of tax cuts elsewhere. Gillis challenges this “standard definition” as “conceptually unclear,” then distinguishes two competing understandings of revenue neutrality.

In Gillis’s terms, “backwards-looking” revenue neutrality adheres to an enactment-year revenue baseline and effectively straightjackets future revenue increases. By contrast, “sideways-looking” revenue neutrality looks to a hypothetical—and frequently unknowable—current-year baseline calculated as if the carbon tax had never been promulgated. 

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews New Technologies and the Evolution of Tax Compliance

This week, Hayes Holderness (Richmond) reviews James Alm (Tulane), Joyce Beebe (Rice), Michael S. Kirsch (Notre Dame), Omri Y. Marian (UC-Irvine) & Jay Soled (Rutgers), New Technologies and the Evolution of Tax Compliance, 39 Va. Tax Rev 287 (2020):

Ask almost any waiter and they will say that cash tips are best. “Why?,” a first time diner might ask. The waiter probably will not respond, “information,” but information is likely the root of the answer—or rather, control of information. Yes, there is some convenience to being paid immediately with cash. However, being fairly confident that diners will not tell the restaurant or the Internal Revenue Service how much they tipped, waiters control that information and can report it as they see fit. And when one focuses on waiters as taxpayers, their control over that information becomes problematic because that control enables the waiters to engage in tax evasion.

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Weekly SSRN Tax Article Review And Roundup: Layser Reviews Ryznar's Extending The Charitable Deduction Beyond The COVID-19 Pandemic

This week, Michelle Layser (Illinois) reviews Margaret Ryznar (Indiana-Indianapolis), Extending the Charitable Deduction Beyond the COVID-19 Pandemic, 167 Tax Notes Fed. 463 (Apr. 20, 2020).

The Coronavirus Aid, Relief, and Economic Security (CARES) Act made two changes to the charitable contributions deduction: it increased the cap on deductible contributions for itemizers, and it created a new above-the-line deduction for charitable donations up to $300. While the first of these is limited to the 2020 tax year, the latter change is permanent and applicable to taxable years beginning in 2020. Professor Margaret Ryznar has argued that the new above-the-line deduction is good tax policy and supports its extension beyond the current pandemic.

In her brief essay, Ryznar comments on the value of the above-the-line charitable contribution deduction in two contexts. First, she considers the value of the deduction as a policy intervention during the COVID-19 pandemic. Ryznar notes that charities “seeking donations to help during the coronavirus pandemic range from procuring food for school children to locating equipment for hospitals” and argues that such charitable activities are “important supplements to the government response to the pandemic.”

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Weekly SSRN Tax Article Review And Roundup: Kim Reviews Zelinsky's Coronavirus, Telecommuting, And The 'Employer Convenience' Rule

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Edward A. Zelinsky (Cardozo), Coronavirus, Telecommuting, And the 'Employer Convenience' Rule 95 State Tax Notes 1101 (Mar. 30, 2020):

I hope everyone who reads this review stays well and healthy. Many non-essential workers have been working from home as nearly all states have issued stay-at-home orders and closed businesses in an effort to stem the tide of the virus. This raises a new question for out-of-state commuters: which state can tax the income that cross-border workers have earned at home under the COVID-19 situation? I personally have been curious about this issue because I taught two classes, Federal Income Tax class and Taxation of Business Entities, remotely from another state since spring break of this semester. Edward Zelinsky's short article, Coronavirus, Telecommuting, And the 'Employer Convenience' Rule, brings an interesting perspective to this question. He criticizes New York's policy of taxing the income earned by out-of-state telecommuters, arguing that it was bad policy in good times and even worse policy in times like today.

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Roxan's Is VAT Also a Corporate Tax?

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by Ian Roxan (LSE), Is VAT Also a Corporate Tax? Untangling Tax Burdens and Benefits for Companies, LSE Legal Studies Working Paper 2/2020.

Simple taxes are often spoiled by the complexities of tax incidence. We think we’re taxing consumers, and somehow businesses bear the cost. We think we’re taxing capital owners, and somehow workers bear the cost. It’s as dizzying as Three-card Monte.

Ian Roxan bravely enters the tax-incidence fray with his recent article on the value added tax (VAT). I must admit up front that the article delved into details of European law that are beyond my ken. I forged onward nonetheless, armed with moxie and the assumption that the general principles underlying American and European tax law are roughly the same. I maintain this assumption of shared legal principles despite the vast cultural gulf between Americans and Europeans. See, e.g., the metric system, mayonnaise on French fries, and castles.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews How Not To Give People Money During a Pandemic

This week, Mirit Eyal-Cohen (Alabama) reviews Pamela Foohey (Indiana-Bloomington), Dalié Jiménez (UC-Irvine), and Christopher K. Odinet (Oklahoma), CARES Act Gimmicks: How Not To Give People Money During a Pandemic And What To Do Instead, 2020 U. Ill. L. Rev. Online 81 (2020):

This timely essay scrutinizes the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in its aim to deliver economic relief. The main aspects of the CARES act provide individuals and families direct cash payments (“recovery rebates”), unemployment benefits, paid sick leave, foreclosure and eviction moratorium, and student loan suspension. The authors focus their attention on the first two.

The CARES act provides every household with direct payments of $1,200 per adult and $500 for every child under the age of 16. These amounts phase out based on AGI figures from previously filed tax returns by $5 for every $100 of income over an applicable threshold. The act also provides additional unemployment benefits of $600 per week to assist families during the crisis without making substantial changes in their spending and consumption. While both benefits do not cover all lost pay (past years’ national average weekly benefit was $387 and varied by state), they relax the pressure of job loss and allow individuals to continue to purchase food and supplies and pay for utilities while looking for new employment. They help maintain consumption and the nation’s economic activity. The CARES act also extends the duration of unemployment insurance and lowers the standards on eligibility requirements such as including individuals with insufficient work history, independent contractors, and gig economy workers.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Cauble's Time For A Tax Return Filing Fee

This week, David Elkins (Netanya, visiting Cornell spring 2020) reviews a recently posted work by Emily Cauble (DePaul), Time for a Tax Return Filing Fee, 57 Harv. J. on Legis. ___ (2020):

Not all tax returns are created equal. They vary with regard to their complexity and, consequently, with regard to the amount of time that the IRS needs to devote to them on audit. In this week’s article, Professor Emily Cauble proposes imposing upon filers a fee that would reflect the complexity of the transactions reported. She argues that such a fee would make the system fairer, would raise revenue to cover the cost of auditing the return, and would improve efficiency by encouraging taxpayers to take into account the cost imposed on the tax administration by their complex transactions. Her proposal includes a carve-out for difficult-to-audit items, such as the EITC, that are disproportionately claimed by lower-income individual.

The proposal is intriguing and I freely admit that despite having gone over it several times, I am little closer to forming a definitive position. In this review, I will take the liberty of expressing some of my reservations. I will state at the outset that they are nothing other than starting points for a discussion about it.

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Hayashi's Countercyclical Property Taxes

This week, Sloan Speck (Colorado) reviews a new work by Andrew T. Hayashi (Virginia), Countercyclical Property Taxes, Va. L. & Econ. Res. Paper No. 2020-04.

In Countercyclical Property Taxes, Andrew Hayashi argues that residential real property taxes have important—and counterintuitive—macroeconomic implications during recessions and subsequent recoveries. Although policymakers often tout property taxes as stable revenue sources when the economy stalls, Hayashi lucidly outlines how these tax instruments amplify both household risk and community risk by pressuring homeowners’ discretionary spending. As Hayashi highlights, the design features of property taxes that generate revenue stability are the very same elements that shift risk from government units to households and communities. For this reason, Hayashi suggests taking a fresh and more nuanced look at property tax relief during downturns, with an eye towards fairness and equity in addition to revenue.

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Mason's What The CJEU’s Hungarian Cases Mean For Digital Taxes

This week, Hayes Holderness (Richmond) reviews Ruth Mason (Virginia), What the CJEU’s Hungarian Cases Mean for Digital Taxes:

Long before the current crisis ramped up fiscal pressure on nations and states, governments have sought to tax the foreigner rather than those at home. Coordination between nations and states has sought to limit the ability of governments to engage in such protectionist or discriminatory taxation; the European Union’s protection of fundamental freedoms and the United States’ Commerce Clause (at least in its dormant capacity) serve as examples. As governments begin considering and adopting digital taxes, such as France’s Digital Services Tax, these coordinated efforts may prevent those governments from utilizing those taxes in protectionist ways by discriminating against out-of-state taxpayers. Indeed, France’s Digital Services Tax has been challenged for exactly that reason because the tax appears to target United States companies while failing to capture most French companies.

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Weekly SSRN Tax Article Review And Roundup: Layser Reviews Evaluating Economic And Financial Policy Responses To The Coronavirus

This week, Michelle Layser (Illinois) reviews Hiba Hafiz (Boston College), Shu-Yi Oei (Boston College), Diane Ring (Boston College), & Natalya Shnitser (Boston College), Regulating in Pandemic: Evaluating Economic and Financial Policy Responses to the Coronavirus Crisis, Boston College Law School Legal Studies Research Paper No. 527 (March 2020).

News about the COVID-19 coronavirus pandemic has been breaking by the hour, and for people like me who can’t look away from it, the whole situation is positively overwhelming. Fortunately, a team of researchers at Boston College Law School have already pulled together an excellent working paper that provides an analytical framework to bring the key issues into focus. Their paper, which will be “continually updated to reflect current developments,” is a must read for tax and fiscal policy researchers and lawmakers.

The paper begins by describing a trifecta of policy objectives that are relevant to fight the pandemic. The first objective is to provide a social safety net and social insurance for unemployed workers. Unemployment claims are skyrocketing as supply chains are disrupted and businesses are ordered to shut their doors for the purpose of social distancing. The authors identify several choice-of-delivery questions. Should assistance be delivered directly via cash infusions like universal basic income? Should benefits be tied to work? Should aid be provided to individuals or to businesses (to help avoid layoffs)? A central goal of the paper is to explore how these questions might be answered without undermining the other two objectives.

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Weekly SSRN Tax Article Review And Roundup: Kim Reviews Shakow's Taxing Bitcoin And Blockchains

This week, Young Ran (Christine) Kim (Utah) reviews a new work by David J. Shakow (Pennsylavania), Taxing Bitcoin and Blockchains—What the IRS Told Us (and Didn't), 166 Tax Notes Fed. 241 (Jan. 13, 2020).

The IRS has issued two new guidance on tax issues related to Bitcoin and other cryptocurrencies–Notice 2014-21 and Rev. Rul. 2019-24. However, by no means, has the guidance answered all questions surrounding the tax treatment of cryptocurrencies. David Shakow's new work, Taxing Bitcoin and Blockchains—What the IRS Told Us (and Didn't), offers an excellent roadmap for those who would like to understand the tax issues of cryptocurrencies along with the recent IRS guidance.

To offer basic knowledge of the blockchain structure, Shakow starts with comparing a "Proof of Work" (PoW) structure with a "Proof of Stake" (PoS) structure. These two structures are used to confirm transactions of cryptocurrencies. Bitcoin uses a PoW consensus process, recording transactions in a "block," which is verified by miners through their work. That work requires the use of substantial computer and electric power. 

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Batchelder's Leveling The Playing Field Between Inherited Income And Work Income

This week, Mirit Eyal-Cohen (Alabama) reviews Lily L. Batchelder (NYU), Leveling the Playing Field between Inherited Income and Income from Work through an Inheritance Tax, in Tackling the Tax Code: Efficient and Equitable Ways to Raise Revenue, 48-88 (Jay Shambaugh & Ryan Nunn eds, 2020):

Despite our national mythos as a land of opportunities, financial success in the United States depends heavily on one’s birth circumstances. The U.S. demonstrates the lowest levels of intergenerational economic mobility among high-income countries. Inheritances exacerbate both these challenges because they represent about 40% of all wealth and, on average, parents pass on roughly one-half of their economic advantage or disadvantage to their children. In 2020, Americans are projected to inherit about $765 billion in gifts and bequests. Yet, the current estate and gift tax are projected to raise only $16 billion in 2020, implying an effective tax rate of 2 percent. This means that under the current tax regime, inherited income is taxed at less than one-seventh the average tax rate on income from work and savings.

In this book chapter, Batchelder claims that the exclusion from tax of inherited wealth transfers plays a key role in today’s inequity gap.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Newman's Sales And Donations Of Self-Created Art, Literature, And Music

This week, David Elkins (Netanya, visiting Cornell Spring 2020) ) reviews a recently posted work by Joel S. Newman (Wake Forest), Sales and Donations of Self-Created Art, Literature, and Music, 12 Pitt. Tax. Rev. 57 (2015):

I have always enjoyed the writings of Professor Joel Newman. He combines insightful analysis with a touch of humor that is distinctive in the tax discourse. In the article reviewed here, Professor Newman discussed the tax treatment of sales and donations of self-created art, literature and music.

The first part of the article concerns sales. In 1948, General Dwight D. Eisenhower sold his memoirs. As he was a general and not a professional writer, the sale of those memoirs received capital gains treatment. In response, Congress enacted what is now §1221(a)(3), which provides that the term capital asset does not include “a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by a taxpayer whose personal efforts created such property.” Thus, the sale of memoirs by a future general would produce ordinary income. In 2005 Congress made an exception to the general rule (pun intended) and granted songwriters capital gains treatment on the sale of copyright to their works.

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Reversing The Fortunes Of Active Funds

This week, Sloan Speck (Colorado) reviews a new work by Adi Libson (Bar-Ilan) & Gideon Parchomovsky (Pennsylvania), Reversing the Fortunes of Active Funds (2020).

In Reversing the Fortunes of Active Funds, Adi Libson and Gideon Parchomovsky propose a novel, tax-oriented solution to a well-established and important problem in the literature on corporate governance: the rise of “passive” investment funds as substantial shareholders in publicly traded companies. Libson and Parchomovsky argue that these passive funds engage in limited oversight with respect to their massive stock holdings. Downward cost pressure discourages informed or engaged voting with one’s hands, and slavish fidelity to benchmark indices precludes voting with one’s feet. The result is that passive funds (and many retail investors, and perhaps society as a whole) free-ride on active funds’ efforts to monitor management. For Libson and Parchomovsky, the answer is a Pigouvian subsidy, administered through the income tax system, to these active funds—the reversal of fortune referenced in their article’s title.

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Brunson's Donor-Advised Funds And The Deferral of Charity

This week, Hayes Holderness (Richmond) reviews Sam Brunson (Loyola-Chicago), 'I’d Gladly Pay You Tuesday for a (Tax Deduction) Today': Donor-Advised Funds and the Deferral of Charity, 55 Wake Forest L. Rev. ___ (2020).

Perhaps one of the most entrenched deductions available under the Internal Revenue Code is the deduction for contributions to charitable organizations. Though the deduction has its opponents, it just feels right to the national psyche (perhaps too right, making it hypersalient, as Lilian Faulhaber exposed in a 2012 article). The broad appeal of the deduction may lie in its many potential justifications, such as relieving the government of spending it would otherwise have to do, facilitating civic engagement by letting the donor direct government funds, respecting the notion that spending on others should not be considered personal consumption, and incentivizing the socially beneficial behavior of helping others. In his forthcoming article, Sam Brunson highlights the failure of donor-advised funds to live up to the high goals of the charitable deduction.

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Weekly SSRN Tax Article Review And Roundup: Layser Reviews Hoffer's Tax Theory & Feral AI

This week, Michelle Layser (Illinois) reviews Stephanie Hoffer (Ohio State), Tax Theory & Feral AI, Public Law & Theory Working Paper Series No. 524 (Jan. 16, 2020)

The robot invasion is upon us. It started out innocently enough, with cute little robots sweeping pennies from the sidewalk. But then people started abandoning their robots in misguided acts of performance art and neglect. Some of the robots they abandoned were digital creatures who lurked at the corners of the internet, going feral and getting smarter. They learned how to write novels and poetry. People bought the prose and verse that the robots had created. And no one paid taxes.

Fortunately, this horror story is fiction (for now). Variations of this hypothetical were presented in a new working paper by Professor Stephanie Hoffer. Hoffer imagines a world in which unowned, digital AI robots are running loose on the internet, creating new value and engaging in real economic transactions. She then invites her readers to join her as she moves through a thought experiment that considers a variety of problems associated with taxing feral AI.

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Weekly SSRN Tax Article Review And Roundup: Kim Reviews Chason's Cryptocurrency Hard Forks And Rev. Rul. 2019-24

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Eric D. Chason (William & Mary), Cryptocurrency Hard Forks and Revenue Ruling 2019-24, 39 Va. Tax Rev. 277 (2019).

When the IRS issued Revenue Ruling 2019-24 (the "Ruling") on the tax treatment of hard forks and airdrops of cryptocurrencies, many people believed that the Ruling would offer guidance on the tax issues of both hard forks and airdrops that the community of cryptocurrency users generally understand. Is that so? Many commentators and investors in cryptocurrencies say no (see e.g., Mathew Beedham, The IRS' Latest Cryptocurrency Tax Guidance Shows It Still Doesn't Get It). Eric Chason's new work, Cryptocurrency Hard Forks and Revenue Ruling 2019-24, 39 Va. Tax Rev. 277 (2019), is soundly in line with such criticism.

As an introduction, the Ruling is understood as the IRS’s response to tax issues arising from the hard fork of the Bitcoin blockchain that resulted in the creation of Bitcoin Cash, a new cryptocurrency. The hard fork resulted in a windfall to owners of Bitcoin, who, at the time of the hard fork, received one unit of Bitcoin Cash for each unit of Bitcoin owned. This hard fork resulted in many unanswered tax issues relating to such newly created cryptocurrency.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Klein's Contemptuous Tax Reporting

This week, Mirit Eyal-Cohen (Alabama) reviews Israel Klein (Ariel University), Contemptuous Tax Reporting, 2019 Wis. L. Rev. ___ : 

This interesting article is right down my alley, namely R&D tax incentives. Recently, legal scholars (including yours truly here and here) have questioned the justifications for the current R&D tax incentives regime and their effectiveness in inducing additional research expenditures. Every year, about 25 billion dollars of research incentives are claimed by companies. Likewise, the current R&D credit allows companies to reduce tax bills by an amount equal to 14 or 20 percent of their current year Qualified Research Expenditures. The article points out that this tax benefit combined with the U.S. self-assessment principle that encompasses only occasional ex-post audits create an incentive for managers to participate in contemptuous self-reporting, that is reporting their companies’ tax while intentionally miscategorized R&D expenditures. Moreover, the recent repeal of the corporate Alternative Minimum Tax (AMT) in the Tax Cuts and Job Act removed the limits on the extent to which taxpayers can utilize credits and deductions to lower their overall tax liability, thus created a bigger tax break for R&D while perpetuating the incentive to overstate R&D spending.

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Zhang's Fiscal Policy In Imperial China

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by Taisu Zhang (Yale), Fiscal Policy and Institutions in Imperial China, forthcoming in the Oxford Research Encyclopedia of Asian History.

Not being a historian, and knowing next to nothing about Imperial China, it was with humble curiosity that I approached Taisu Zhang’s recent work, Fiscal Policy and Institutions in Imperial China.  I was rewarded with a fascinating account of Chinese fiscal history dating back to the Tang dynasty of the 7th-10th centuries.  The piece focuses on the Ming and Qing dynasties in particular, China’s last two imperial dynasties, which ended in the early 1900s.  In this brief review, rather than marching through Zhang’s expert account, I will highlight a few threads that felt of special relevance to our modern fiscal-political discourse.

Zhang starts with Confucius, who, like all good philosophers, gave some thought to taxes.  Specifically, he disliked them. (Admittedly, perhaps he did not give much thought to taxes.)  Confucius equated tax collection with the “pursuit of material gain,” which he placed in opposition to virtue, the ultimate aim.  Thus, a ruler should only levy taxes if justified by some higher virtue.  

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Eden's The GloBE Proposal For A Global Minimum Tax

This week, David Elkins (Netanya, visiting Cornell Spring 2020) reviews a new article by Lorraine Eden (Texas A&M), Taxing Multinationals – The GloBE Proposal for a Global Minimum Tax, Bloomberg Tax Daily Tax Report (Dec. 6, 2019), 49 Tax Mgmt. Int'l J. ___ (2020):

One of the recent manifestations of the OECD's war against base erosion, profit shifting, and international tax competition (although the title of its BEPS project refers only to the first two, the last is also a critical element of its campaign) is the Global Anti-Base Erosion Proposal (known by its somewhat forced acronym GloBE). GloBE proposes the imposition of two new types of taxes by the countries that are members of BEPS initiative. The first is a global minimum tax — at a hitherto unspecified rate — on corporate profits. The second is a tax on base erosion payments. In her paper, Prof. Eden discusses the former, which she refers to as GMinTX.

She begins by discussing the current state of affairs. Host countries tax the domestic-source incomes of foreign corporations. The corporation's home country then has the choice of exempting the corporation from further taxation (a territorial system) or, alternatively, of taxing it on its worldwide income and granting a credit for taxes paid in the host country. Countries adopting a system of worldwide taxation effectively require their resident corporations to pay the difference between the tax rate in the source country and the tax rate in the country of residence. 

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Mehrotra & Bayer's The Promise And Limits Of Fundamental Tax Reform

This week, Sloan Speck (Colorado) reviews a new work by Ajay K. Mehrotra (American Bar Foundation; Northwestern) & Dominic Bayer (J.D. 2020, Northwestern), The Promise and Limits of Fundamental Tax Reform: Contrasting the 1986 Tax Reform Act with the 2017 Tax Cuts and Jobs Act, 53 U.C. Davis L. Rev. Online 93 (2019).

In The Promise and Limits of Fundamental Tax Reform, Ajay Mehrotra and Dominic Bayer illuminate the possible future of the 2017 legislation known as the Tax Cuts and Jobs Act by comparing the law with the Tax Reform Act of 1986. Mehrotra and Bayer establish the political and policy roots of the 1986 Act, then trace the law’s piecemeal erosion over the next decade. Using this template, Mehrotra and Bayer conclude that the 2017 Act seems likely to unravel along similar lines.

Mehrotra and Bayer’s rigorous and informed discussion of the 1986 and 2017 Acts is a significant achievement. As the authors note, the press and politicians have connected these very different legislative initiatives in the popular imagination. Indeed, this juxtaposition might be the most bipartisan aspect of the more recent law: conservatives have trumpeted the 2017 Act as the spiritual successor to the 1986 Act, while liberals have condemned the 2017 Act as a betrayal of the fundamental principles embodied in the earlier legislation. Mehrotra and Bayer provide much-needed context and content to evaluate this category of claims.

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Flanagan's Reframing Taxigration

This week, Hayes Holderness (Richmond) reviews Jacqueline Lainez Flanagan (UDC), Reframing Taxigration, 87 Tenn. L. Rev. ___ (2020):

If asked to name one of the top (non-impeachment) hot-button political issues of the day, one might very well pick tax or immigration. Tax and immigration probably would not come to mind, but as Jacqueline Lainez Flanagan argues in Reframing Taxigration, maybe it should. Immigrants regularly interact with federal, state, and local tax systems, and those interactions offer an unexpected avenue for immigration reform. Flanagan’s draft article begins to make the case that that avenue should be pursued.

Despite popular anti-immigrant rhetoric, immigrants—documented or not—contribute to federal, state, and local governments through the payment of income, payroll, sales, and other taxes. It makes sense that immigrants would be subject to these tax laws given their activities in the United States; for example, they earn income, make wages, and purchase goods here. Immigration or citizenship status should not affect tax liability from this point of view, though such status might affect tax liability under a more transactional view of taxation. If taxes are justified as payment for the benefits one receives from the government, then perhaps immigrants should be subject to lower taxes than full citizens who receive more benefits from the federal and state governments.

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Weekly SSRN Tax Article Review And Roundup: Kim Reviews Sutherland's Cryptocurrency Economics And The Taxation Of Block Rewards

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Abraham Sutherland (Virginia), Cryptocurrency Economics and the Taxation of Block Rewards, Part 1 in 165 Tax Notes 749 (Nov. 4, 2019), Part 2 in 165 Tax Notes 953 (Nov. 11, 2019).

Blockchain, which is the technology behind cryptocurrency, is gradually achieving mainstream adoption. On October 28, 2019, the Securities and Exchange Commission authorized a blockchain startup's pilot project where blockchain will be used to settle trades in stock such as GE and AT&T. This project may challenge the securities trading system for clearing and settlement that has been monopolized by the U.S. Central Depository Agency (DTCC). However, the tax community still has a long way to go in the realm of cryptocurrency, not to mention the underlying blockchain technology, because there are many unresolved issues related to the tax consequences of cryptocurrency. IRS Notice 2014-21 provides that cryptocurrency is not currency—rather, it would be taxed as intangible property and should be included in gross income when received. Recently, IRS Rev. Rul. 2019-24 and FAQ on virtual currency transactions clarify the tax treatment of hard forks and airdrops. To be specific, the splitting of a cryptocurrency under a "hard fork" does not create taxable income if no new cryptocurrency is received, but taxable income is generated by "airdrops" that deliver new cryptocurrency. Nonetheless, the IRS has again punted other long-awaited issues, such as the valuation of cryptocurrency and the foreign reporting requirement.

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Weekly SSRN Tax Article Review And Roundup: Layser Reviews Education Has Been 'Dumbed Down' In Tax Reform

This week, Michelle Layser (Illinois) reviews Melanie McCoskey (Akron) and Doron Narotzki (Akron), Education Has Been “Dumbed Down” in Tax Reform, 22 Fla. Tax Rev. (2019)

This Thanksgiving, when my cousin raised the subject of gigantic college endowments, my mind went straight to tax (as it does). Coincidentally, I had just read an essay by Professors Melanie McCoskey and Doron Narotzki about recent tax law changes affecting higher education. So, about those college endowments.

The Tax Cuts and Jobs Act introduced a new excise tax on private colleges with large endowments (I.R.C. § 4968). The tax, which applies to colleges with endowments of at least half a million dollars per student, equals 1.4% of their net investment income. Relatively few colleges are hit by the tax, and the authors include a list of the 25 that were. There aren’t many shockers on the list, but some may be surprised to learn which schools are not listed. The bottom line: to get hit by this tax, a school’s endowment not only needs to be gigantic, but it needs to be really gigantic.

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