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.

Continue reading

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.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Morse's GILTI: The Co-Operative Potential Of A Unilateral Minimum Tax

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by Susan Morse (Texas), GILTI: The Co-operative Potential of a Unilateral Minimum Tax, 2019 Brit. Tax Rev. 512.

Cooperative is not a term often applied to the Tax Cuts and Jobs Act (TCJA).  And yet, as Susan Morse explains in her recent article on “global intangible low-taxed income” (GILTI), the Act does have some cooperative potential.  This potential arises from the new immediate tax on GILTI income—a subset of foreign income—earned by U.S.-parented multi-national corporations (MNCs).  The presence of a mandatory tax removes incentives for countries to race to the bottom with ever-lowering tax rates, to the extent that they do so to attract U.S. MNCs.  Moreover, by providing a foreign tax credit for 80% of foreign taxes paid, the law gives the “right of first refusal” to foreign jurisdictions.  In a sense, the GILTI regime carves out a protected space for foreign countries to tax U.S.-parented MNCs, effectively creating a global tax floor of 13.125% (increasing to 16.4% in 2025).

Continue reading

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Chason's A Tax On The Clones: The Strange Case Of Bitcoin Cash

This week, Mirit Eyal-Cohen (Alabama) reviews Eric D. Chason (William & Mary),  A Tax on the Clones: The Strange Case of Bitcoin Cash, 39 Va. Tax Rev. __ (2019).  

This Article is right down my ally dealing with taxation and innovation. In recent years, Cryptocurrency generally, and Bitcoin specifically, have risen steeply in their market value breaking record percentage increase. Notwithstanding its speculative hype, blockchain technology through community-wide protocols has been a state-of-the-art development that had been spurring change in the fields of economics, technology, and the law. The rise in digital assets has created tax issues involving the definition of blockchain. Is it property or currency? In a series of publications including Rev. Rul. 2019-24, the IRS determined these digital assets are considered property. This Article presents the difficulty of applying such tax treatment encroach upon its administrability and making digital assets’ use impractical when looking at every transaction as subject to gain and loss recognition. It does so by focusing on implications of Cryptocurrency derivatives, also known as Bitcoin forks or Bitcoin Cash.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Listokin's Posner on Tax: The Independent Investor Test

This week, David Elkins (Netanya) reviews a new work by Yair Listokin (Yale), Posner on Tax: The Independent Investor Test, 86 U. Chi. L. Rev. 1159 (2019):

Richard Posner is one of the most influential legal scholars of recent generations. He is perhaps best known as a leading figure in the school of Law and Economics. Complimenting his academic work, he served as a judge on the Seventh Circuit Court of Appeals for 36 years before retiring in 2017. In the field of taxation, one of his more memorable decisions was Exacto Springs Corp. v. Commissioner, 196 F3d 833 (7th Cir. 1999), which concerns the characterization of payments from closely held corporations to individuals who are both shareholders and employees: is the payment properly classified as a salary or as a distribution?

The question of how to characterize payments to shareholders arises whenever shareholders provide services or sell property to the corporation that they control. If a shareholder leases property to a corporation, is the payment that the parties describe as rent truly rent or is it only partly rent and partly a distribution? The issue of classification is particularly significant in the field of international taxation. For example, if a corporation operating in Country A pays what it describes as a royalty to a parent (or otherwise related) corporation in Country B, is the payment actually a deductible royalty or is it a nondeductible distribution? The answer to that question may determine whether Country A can collect tax from the economic activity in its territory.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Glogower & Kamin's The Progressivity Ratchet

This week, Sloan Speck (Colorado) reviews a new work by Ari D. Glogower (Ohio State) & David Kamin (NYU), The Progressivity Ratchet, 104 Minn. L. Rev. ___ (2020):

In The Progressivity Ratchet, Ari Glogower and David Kamin provide further reasons to dislike the headline business tax changes in the 2017 legislation commonly known as the Tax Cuts and Jobs Act, namely the “pass-through” deduction under § 199A and the general reduction in corporate tax rates to 21%. Glogower and Kamin argue that these poorly targeted tax preferences, coupled with private-sector tax gaming and political economy constraints, create the potential for what they term the “progressivity ratchet,” in which lawmakers cannot readily reverse revenue-losing tax preferences by raising nominal rates on high-earning taxpayers. To escape this predicament, Glogower and Kamin suggest restoring the relative penalty for operating in corporate solution, eliminating existing tax preferences, or better targeting those tax preferences that policymakers choose to keep.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Viswanathan's Tax: A Unified Theory of Tax Progressivity

This week, Hayes Holderness (Richmond) reviews Manoj Viswanathan (UC Hastings), A Unified Theory of Tax Progressivity:

I assume I am not the only tax professor who has stood before a group of bright-eyed tax students and explained to them that progressive taxes impose higher tax rates on taxpayers as their income rises, proportionate taxes impose the same tax rates regardless of income, and regressive taxes impose lower tax rates as income rises. I offer to the students that the federal income tax rate brackets provide an example of progressivity; sales taxes an example of regressivity. In A Unified Theory of Tax Progressivity, Manoj Viswanathan reminds me of just how much I have been glossing over in my introductory tax policy lessons.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Layser Reviews Does Government Play Favorites? Evidence From Opportunity Zones

This week, Michelle Layser (Illinois) reviews Ofer Eldar (Duke) and Chelsea Garber (Duke), Does Government Play Favorites? Evidence from Opportunity Zones (Oct. 3, 2019).

With the 2020 Census on the horizon, investors nationwide have been lobbying states to expand the areas designated for tax preferred investment under the federal Opportunity Zones law. In 2017, state governors selected 8,764 census tracts for Opportunity Zone designation. These tracts were selected from a pool of 30,981 low-income census tracts and 10,237 contiguous tracts that were eligible under the federal statute. Whether the IRS will permit states to expand or revisit their Opportunity Zone designations after the Census is yet to be seen. In the meantime, Professors Ofer Eldar and Chelsea Garber have provided a fascinating quantitative analysis of factors that may have driven the initial designation process.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kim Reviews Shaviro's Digital Services Taxes

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Daniel Shaviro (NYU), Digital Service Taxes and the Broader Shift from Determining the Source of Income to Taxing Location-Specific Rents.

Earlier this week, the OECD released the Secretariat Proposal for a "Unified Approach" for the new tax nexus and profit allocation rules to address the tax challenges of the increasingly digitalized economy. The proposal covers highly digitalized business models, but is increased in scope to include consumer-facing businesses. The Unified Approach creates 1) a new nexus rule, not dependent on physical presence and instead largely based on sales, and 2) a new profit allocation rule using a formulaic approach to determine a share of residual, or non-routine, profit allocated to market countries. In addition, if a taxpayer has a traditional nexus in the market country, an additional amount of profit consisting of a fixed return for certain baseline marketing and distribution functions that take place in the market country may further be allocated to the market country. In exchange for this new taxing right of market countries, the countries should agree to a binding and effective dispute prevention and resolution mechanism even if there might be cases where there are more functions in the market countries—that is, more allocable profits to market countries—than the baseline marketing and distribution functions.

Continue reading

This Week's Ten Most Popular TaxProf Blog Posts

1. New York Times, Open Offices Distract Us From Deep Work
2. Bryan Camp (Texas Tech), Lesson From The Tax Court: The Proper Role Of Delay In CDP
3. Paul Caron (Dean, Pepperdine), Week 1 Highlights Of The Dan Markel Murder Trial
4. Wall Street Journal, Is An MBA Still Worth It?
5. Paul Caron (Dean, Pepperdine), University Of Florida Law School Continues Its Rise In Student Quality And Rankings
6. Jonathan Choi (NYU), An Empirical Study of Statutory Interpretation in Tax Law
7. Inside Higher Ed, Speaking Out Against Student Evaluations Of Teaching
8. Peter Arcidiacono (Duke), Josh Kinsler (Georgia) & Tyler Ransom (Oklahoma), Harvard's Preferences For Athletes, Legacies, Dean's Interest, And Children Of Faculty/Staff Overwhelmingly Benefit Whites At Expense Of African-American, Asian-American, And Hispanic Applicants
9. Los Angeles Times, California To Require Mandatory Implicit Bias Training For All Attorneys By 2022
10. Wall Street Journal, U.S. Tax Gap Holds Flat At 14%

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Kornhauser’s Conservative Women’s Groups And Tax Lobbying

This week, Ariel Jurow Kleiman (San Diego) reviews Conservative Women’s Groups & Tax Lobbying, Part 5 in Marjorie E. Kornhauser’s (Tulane) forthcoming book, American Voices in a Changing Democracy: Women, Lobbying, and Tax 1924–1936.

“Women Start Meat Strike,” the 1935 Danville Morning News headline read.  Outraged over the rising price of meat, Detroit housewives boycotted butcher shops and ignited shared outrage among homemakers across the nation. Mary Zuk, whom the newspaper (gratuitously) describes as the “five-foot Polish American originator” of the strike and a “fiery, dark complexioned” woman, blamed the high prices in part on processing taxes levied under the Agricultural Adjustment Act (AAA). As Kornhauser explains in the fourth chapter of her forthcoming book, American Voices in a Changing Democracy, Zuk and her fellow protestors believed that butchers used these taxes as an excuse to gouge consumers. Zuk took her protest to Washington to demand repeal of the tax. Although Congress demurred, the Supreme Court later declared the tax unconstitutional.  What started as a local news headline gained national momentum, offering a colorful example of how women’s voices contributed to the burgeoning national conversation about taxes and government spending.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Cooper's The State Death Tax Credit And The SALT Deduction

This week, David Elkins (Netanya) reviews Jeffrey A. Cooper (Quinnipiac), Red States, Blue States: Lessons from the State Death Tax Credit and the “SALT” Deduction, 73 Tax Law. __ (2020) (forthcoming).

One of the more politically contentious provisions of the 2017 Tax Cuts and Jobs Act is the capping of the deduction for state and local taxes (SALT) at $10,000 per married couple. Opponents of the change have argued that it was designed to punish those states that voted for Hillary Clinton in the 2016 presidential elections. In an attempt to reverse the legislation, the leaders of four of these states have sued the federal government. Proponents claim that the cap is necessary to prevent high-tax states from imposing the costs of their expensive programs on the federal government and, indirectly, on residents of low-tax states.

In a timely article, Professor Cooper places the issue in historical context by comparing the SALT deduction to the federal estate tax state death tax credit that was established in 1924 and repealed in 2001. He posits that viewing the 2017 legislation within the broader historical context reveals trends and patterns, providing greater insight than would a study of the SALT deduction in isolation. He considers not only the rhetoric surrounding the various legislative changes but also how states responded to the adoption and then to the repeat of the state death tax credit and examines whether such behavior might be a harbinger of state reaction to the SALT deduction cap.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Hemel's Taxing Wealth In An Uncertain World

This week, Mirit Eyal-Cohen (Alabama) reviews Daniel Jacob Hemel (Chicago), Taxing Wealth in an Uncertain World, 72 Nat’l Tax J. ___ (2019).

Lately, many political candidates are asked to comment about, and many of them have released, proposals to narrow the economic inequity gap by taxing wealth more heavily. This Essay highlights three alternative capital taxation regimes, namely annual wealth tax, mark-to-market, and retrospective capital gains through their exposure to different types of uncertainties.

An annual wealth tax and a mark-to-market income tax are similar in their operation. The annual wealth tax would require taxpayers to estimate the value of all of their assets each year and pay a tax equal to a percentage of that value (perhaps after subtracting the value of liabilities). Thus, an annual wealth tax would have minimal information requirements and will rely only on a point-in-time snapshot of net worth. Yet, under an annual wealth tax, taxpayers will not have to account for assets sold during the year if the proceeds were consumed before the next valuation date. Such a regime was featured in Senator Elizabeth Warren’s proposal to impose 2% tax on $50 million net worth and 3% on $1 billion of net worth.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Osofsky's Agency Legislative Fixes

This week, Sloan Speck (Colorado) reviews a new work by Leigh Osofsky (North Carolina), Agency Legislative Fixes, 105 Iowa L. Rev. __ (2020).

In Agency Legislative Fixes, Leigh Osofsky develops a framework for understanding and analyzing agency actions to correct technical and drafting errors in legislation. Osofsky motivates this framework primary through various examples from the December 2017 tax legislation known as the Tax Cuts and Jobs Act. In addition, Osofsky alludes to a number of other high-profile legislative mistakes in the Affordable Care Act, the Dodd-Frank Act, and elsewhere. Osofsky adeptly interweaves her tax-oriented story with academic work on legislation and administrative law, yielding a rich critique of Treasury’s current practices in handling gaps between Congress’s presumptive or purported intent and prevailing interpretations of statutory text, as enacted. Osofsky concludes by addressing several possible reforms, including an interesting proposal to adjust the revenue baseline in budget reconciliation to account for erroneous scores attributable to congressional mistakes.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Drumbl's Tax Attorneys As Defenders Of Taxpayer Rights

This week, Hayes Holderness (Richmond) reviews Michelle Lyon Drumbl (Washington & Lee), Tax Attorneys as Defenders of Taxpayer Rights, 91 Temple L. Rev. ___ (2019):

Tax attorneys serve many purposes. Two examples have been recently explored in this review series: tax attorneys may provide de facto insurance to their clients or may serve as agents of social justice. To these examples, Michelle Drumbl’s forthcoming essay adds another: tax attorneys defend taxpayer rights. One might be tempted to respond, “Well, of course they do; each tax attorney’s job is to make sure her clients only pay the tax they owe.” The strength of Drumbl’s essay is not to contradict this observation or to dwell on it, but to expose it as too narrow a view of the tax attorney’s function.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Layser Reviews Hemel's A Place For Place In Federal Tax Law

This week, Michelle Layser (Illinois) reviews Daniel Hemel (Chicago), A Place for Place in Federal Tax Law, 45 Ohio N.U. L. Rev. ___ (2019). 

Place-based investment tax incentives are nothing new, but they were dragged into the spotlight when Opportunity Zones were introduced through the 2017 Tax Cuts and Jobs Act. Depending on who you ask, OZs are either a long overdue solution to the complicated and administratively inefficient incentives of the past—poised to drive large sums of much-needed capital into otherwise disinvested communities—or a misguided law that may create more problems than it solves. Many academic observers, including myself, view OZs with skepticism. Some are so skeptical that they would recommend we abandon our experiment with place-based investment tax incentives altogether. But Professor Daniel Hemel, expanding on remarks given at the 42^nd annual Ohio Northern University Law Review Symposium, argues in his forthcoming essay that there is a place for “place” in federal tax law. I agree.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kim Reviews Chaffee's Collaboration Theory And Corporate Tax Avoidance

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Eric C. Chaffee (Toledo), Collaboration Theory and Corporate Tax Avoidance, 76 Wash. & Lee L. Rev. 93 (2019).

Although there is a famous tax quote by Justice Oliver Wendell Holmes, "I like to pay taxes. With them I buy civilization."; there is nothing wrong with taxpayers’ efforts to minimize their tax liability in manners the legislative body deems permissible. Such “tax minimization” is legally permissible and distinguished from “tax evasion,” which is the illegal nonpayment or underpayment of taxes. Then, what about the gray area between tax minimization and tax evasion, commonly referred to as “tax avoidance?” Is it permissible to pursue tax avoidance, where taxpayers reduce their tax obligations in a manner that technically complies with the law but violates the spirit of the law?

Eric C. Chaffee's new work, Collaboration Theory and Corporate Tax Avoidance, 76 Wash. & Lee L. Rev. 91 (2019), is an effort to answer this difficult question in the corporate tax context. 

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews The Property Tax Forty Years After Prop 13 and Alternative Local Government Revenues

This week, Ariel Jurow Kleiman (San Diego) reviews two recent articles on Californians’ perceptions of property taxes,by Ronald C. Fisher (Michigan State), Robert W. Wassmer (Cal State Sacramento), and Zachary Kuloszewski (Michigan State): Perspectives of the Property Tax Forty Years after Proposition 13 and Support for Alternative Local Government Revenues.

Tax experts are befuddled and frustrated by Americans’ diehard aversion to the property tax, which contravenes professional wisdom on the tax’s salutary qualities and hamstrings local governments’ ability to provide necessary and popular public services.  The rich trove of survey research sparked by the 1970’s property tax revolt, e.g., here and here, speaks to decades of such consternation.  Two recent papers by Fisher, Wassmer, and Kuloszewski use 2016 CalSpeaks surveys to add modern texture to this body of data.

In Support for Alternative Local Government Revenues, the authors conclude that the property tax revolt is “alive and well in California forty years after Proposition 13.”  To arrive there, they asked survey respondents to choose a preferred revenue source to either: 1) make up for a public revenue shortage, or 2) raise revenue to improve inadequate services.  (Side note, data on respondents’ opinions of the adequacy of various public services is interesting on its own.)  In both cases, only about 15% of respondents preferred to raise property taxes, compared to about 30% who preferred to raise the sales tax, and 42-52% preferring to raise fees.  Unsurprisingly, they find that those who self-identify as progressive are more likely to support raising revenue via property taxes, and less likely to support doing so via fees.  Those who identify as conservative are more likely to support fees over taxes.  Aside from ideology, they also find that most other personal characteristics (such as race or education) are not correlated with tax preferences.  Two exceptions to this are homeowners and people with income above $150K, both of whom are less likely to prefer the property tax over other revenue sources. 

Continue reading

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews McCaffery's A Better Hope For Campaign Finance Reform

This week, Mirit Eyal-Cohen (Alabama) reviews Edward J. McCaffery (USC), A Better Hope for Campaign Finance Reform.

McCaffrey begins this Article with a gloomy picture of American politics—”dark money” has made the identity of mega-givers and the degree of their political contributions opaque. Referring to 2016 presidential and congressional election biggest givers, he blames the social and political issues in the U.S. to the role of money in politics. Many wealthy donors are spending huge sums to influence democratic politics—to buy politicians or political offices or laws. McCaffery has little hope of changing these facts of human nature.  He demonstrates how legislative, judicial and regulatory actions have failed in solving this problem. But not to worry because he has a plan. McCaffery proposes to utilize the tax system to reduce campaign spending by raising the pre-tax costs of political expenditures. Similar to other Pigouvian models like the cigarettes tax, raising the costs of harmful political activities through taxation will reduce their occurrence. He claims that political contributions is another example where taxation is more efficient in reducing undesired behavior than other regulatory measures or public education campaigns. Yet, his proposal is not exclusive to political campaign contributions. Here, too, he advances his longtime proposal to switch from an income-based to consumption-based tax system, also known as a progressive spending tax. In fact, he admits that there would be no change in the tax treatment of campaign contrition—there will be no provision in the reformed consumption tax system that is specific to political expenditures, other than rules similar to today’s disallowing them as ordinary business deductions or as charitable contributions.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Kysar's Unraveling The Tax Treaty

This week, David Elkins (Netanya) reviews Rebecca M. Kysar (Fordham), Unraveling the Tax Treaty, 103 Minn. L. Rev. __ (2019).

Tax treaties are a ubiquitous feature in the landscape of international taxation, with several thousand bilateral instruments operating to regulate the taxing power of their signatories. However, in recent years, scholars have begun to challenge the century-old principles underlying the tax treaty. Some of these challenges concern the capacity of an institution formed in the aftermath of the First World War to handle our digital and much more globalized economy. Other challenges concern the role of the tax treaty in protecting the interests of wealthier countries.

The bulk of Professor Rebecca Kysar’s essay is dedicated to a critical examination of the tax treaty, as currently constituted. Tax treaties have been justified as tools for preventing double taxation, combatting tax evasion, inhibiting double non-taxation, encouraging foreign direct investment, respecting comity, providing certainty and predictability, institutionalizing non-discrimination, and binding governments to follow good tax policy even when confronted with the demands of political expediency. Professor Kysar addresses each of these issues in turn. 

Continue reading

Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Crawford's Magical Thinking And Trusts

This week, Hayes Holderness (Richmond) reviews Bridget J. Crawford (Pace), Magical Thinking and Trusts, 50 Seton Hall L. Rev. ___ (2019).

Wealth inequality is a major concern in today’s United States. As wealth concentrates among the super-wealthy, lawmakers, academics, and commentators have proposed ways to diffuse that wealth, often through tax reform. Wealth remains concentrated in part through the use of legal rules and entities, perhaps in ways that lead to unintended results. Here there be trusts. Trusts—particularly family trusts—have long been a major tool of wealth conservation and potential tax avoidance. So when the Supreme Court heard this year’s Kaestner case questioning North Carolina’s authority to tax the income of a family trust, many hoped that the Justices would help dismantle the tax avoidance tool by blessing the state’s taxing authority.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Nagato's Tax Consequences Of The Fukushima Nuclear Disaster

This week, Sloan Speck (Colorado) reviews a new work by Takayuki Nagato (Gakushuin University, Faculty of Law), Tax Losses and Excessive Risk Taking Under Limited Liability: A Case Study of the TEPCO Bailout After the Fukushima Nuclear Disaster, 32 Colum. J. Asian L. 137 (2019).

On March 11, 2011, an earthquake and subsequent tsunami devastated the Fukushima Dai-ichi nuclear power plant, which lies roughly 150 miles north of Tokyo on Japan’s eastern coast. The Fukushima nuclear disaster caused tremendous and far-reaching economic—and, of course, personal—losses. By statute, the operator of the Fukushima plant, Tokyo Electric Power Company Holdings (TEPCO), was held strictly liable for approximately $80 billion of damages that stemmed from the disaster. In a compelling recent article, Takayuki Nagato explores the tax consequences of TEPCO’s damage payments as a vehicle to interrogate the treatment of tax losses and risk-taking more generally. Nagato’s excellent and engaging analysis also adds a parallel strand to scholarly conversations about taxation’s direct and indirect role in disaster relief, as well as current commentaries on Pacific Gas & Electric’s wildfire-driven bankruptcy.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Layser Reviews Blank & Osofsky's Legal Calculators And The Tax System

This week, Michelle Layser (Illinois) reviews a new work by Joshua D. Blank (UC-Irvine) and Leigh Osofsky (North Carolina), Legal Calculators and the Tax System, 15 Ohio St. Tech. L.J. ___ (2019).

The IRS has long attempted to aid wary taxpayers by publishing informal guidance that translates tax laws into more understandable statements. In previous work, Professors Joshua Blank and Leigh Osofsky have argued that such plain language guidance often oversimplifies complicated tax laws, opening the door to errors. They have called this characteristic “simplexity.” In their newest article on the subject, Blank and Osofsky identify another—potentially more serious—example of tax guidance that reflects simplexity: automated legal calculators like the IRS’s Interactive Tax Assistant.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kim Reviews Schön's How To Tax The Digitalized Economy

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Wolfgang Schön (Max Planck), One Answer to Why and How to Tax the Digitalized Economy (June 2019).

Taxation of the digitalized economy is without a doubt the most important topic of international taxation in 2019. The G20 and the OECD have already released three documents this year—a Policy Note in January, a Public Consultation Document in February, and a Programme of Work to Develop a Consensus Solution in May—to follow up on the Action 1 of the BEPS Project (Addressing the Tax Challenges of the Digital Economy) released in 2015 and the interim report published in 2018. The February 2019 Public Consultation Document outlines three proposals under its consideration: 1) the User Participation Proposal, 2) the Marketing Intangibles Proposal, and 3) the Significant Economic Presence Proposal. The subsequent May 2010 Programme of Work categorized important differences in the prior three proposals into new nexus rules and new profit allocation rules. In consideration of the new profit allocation rules, the Programme of Work addressed several options under a number of different labels, including the modified residual profit split method, fractional apportionment method, distribution-based approaches, and so on.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Data Analytics And Tax Law

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by University of Toronto faculty members Benjamin Alarie, Anthony Niblett, and Albert Yoon, Data Analytics and Tax Law.

Whether you fear or celebrate big data likely depends on your background, biases, experiences, and, perhaps most importantly, which systems you imagine the data to be benefitting.  Benjamin Alarie, Anthony Niblett, and Albert Yoon’s recent paper falls squarely on the celebrate side of the debate—at least in the context of tax administration—and persuasively invites the reader to join them there.  In this brief essay, the authors explore how tax agencies and taxpayers can harness data analytics and machine learning to improve tax administration for both government and taxpayers.

For government, data analytics can narrow the tax gap by improving fraud detection.  Specifically, tax agencies can mine taxpayer data to predict noncompliance ex ante, rather than uncovering the noncompliance ex post via audit.  Such predictions can inform resource allocations, allowing tax agencies to shift resources to high-risk sectors and companies.  Augmenting taxpayer data with information from other government agencies would improve these efforts.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Shanske's State Responses To Federal Tax Law

This week, Mirit Eyal-Cohen (Alabama) reviews Darien Shanske (UC-Davis), States Can and Should Respond Strategically to Federal Tax Law, 45 Ohio N.U. L. Rev. ___ (2019).

Shanske writes this timely symposium piece as part of the aftermath of the Tax Cuts and Jobs Act (TCJA) as states are forced to respond to significant federal tax changes on conformity issues, namely whether and how to adapt to the changes made to federal tax law. The gist of Shanske’s argument is that as a matter of state tax policy, states do not need to conform to the TCJA. Rather, they should view conformity as an opportunity to be strategic and adopt only some federal law but not all in a particular area.

Nevertheless, states acting strategically may disincentivize behavior by taxing it thus undermine national goals.  For example, if a state chooses to levy a sufficiently high tax on an activity that the federal government incentivized (like a railroad system) as to thwart that activity altogether it could be very problematic. So Shanske is looking to draw the line that divides state autonomy and federal sovereignty. He outlines fiscal federalism in theory and practice and incorporates comparative constitutional perspectives to inform the appropriate – and actual – approach that constitutional law takes as to the preemption of state taxes.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Avi-Yonah's Does Customary International Tax Law Exist?

This week, David Elkins (Netanya) reviews a book chapter by Reuven S. Avi-Yonah (Michigan), Does Customary International Tax Law Exist.

Customary international law provides that when countries habitually adhere to certain norms because of a belief that customary international law requires them to do so, then those norms constitute binding international law. Note that the fact that countries adhere to certain norms is not sufficient to establish the existence of an international obligation. For a usage to become a custom, it must be shown not only that countries habitually act (or refrain from acting) in a certain manner, but that they do so because of their belief that they are so obliged under international customary law. Once a custom has been established, it is binding upon all countries, including countries that did not take part in creating it and countries that did not even exist when the customary norm was established.

The other source of international obligations is conventional international law, which provides that countries are bound by the term of treaties to which they are signatories. On occasion, customary and conventional international law overlap. 

Continue reading

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Field's Tax Lawyers As Tax Insurance

This week, Sloan Speck (Colorado) reviews a new work by Heather Field (UC-Hastings), Tax Lawyers as Tax Insurance, 60 Wm. & Mary L. Rev. __ (2019).

In Tax Lawyers as Tax Insurance, Heather Field explores the issuance of tax legal opinions as a form of de facto insurance against the risks of an adverse tax determination by governmental authorities. Field moves beyond the conventional framing of tax opinions as “insurance” against penalties, instead casting opinion practice as providing “a limited and conditional indemnity” to clients by way of the opinion writer’s malpractice insurance. Field contrasts this informal insurance with the burgeoning market in formal tax insurance policies, giving particular attention to intersections and entanglements that complicate the broader question of how individuals and firms address tax-related risk. Field argues that thinking about tax opinions through the lens of insurance yields insights into the value and limitations of transactional lawyering, among other things.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Abreu & Greenstein's Tax: Different, Not Exceptional

This week, Hayes Holderness (Richmond) reviews Alice Abreu (Temple) and Richard Greenstein (Temple), Tax: Different, Not Exceptional, 71 Admin. L. Rev. __ (2019):

Tax is special. There is nothing quite like it. It has its own lingo, bar sections, courts, constitutional provisions, and even blogs. Most United States citizens are keenly aware of tax; indeed, there might not have been a United States without certain taxes. But many areas of law can make similar claims. Most citizens are aware of the criminal law; specialized blogs, bar sections, and courts exist for many types of law; and apparently “trolls” are a concern in patent law. So tax is special, but is it truly in a league of its own, different in kind from other areas of law? Is tax exceptional? “No,” argue Alice Abreu and Richard Greenstein, in a thought-provoking piece that questions the very meaning of “exceptional” in this context.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Layser Reviews Thimmesch's The Unified Dormant Commerce Clause

This week, Michelle Layser (Illinois) reviews Adam B. Thimmesch (Nebraska), The Unified Dormant Commerce Clause, 91 Temple L. Rev. ___ (2019).

Between South Dakota v. Wayfair and Franchise Tax Board of California v. Hyatt, this has been a big year for state tax law developments. First, Wayfair expanded state taxing authority by making it easier for states to impose tax collection obligations on online merchants. Then Hyatt expanded states’ sovereign immunity to protect them from lawsuits filed by nonresident taxpayers in other states. It seems clear that the playing field has been tilted in favor of state taxing power and that the legal landscape is changing for state tax law. But what exactly is the current state of the law itself?

To help answer this question, Professor Adam B. Thimmesch has revisited the touchstone case for evaluating state tax laws under the commerce clause, Complete Auto Transit, Inc. v. Brady (1977) to see what, if anything, in the doctrine is still relevant after Wayfair.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kim Reviews Cui's The Digital Services Tax: A Conceptual Defense

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Wei Cui (UBC), The Digital Services Tax: A Conceptual Defense (April 2019).

There are already multiple versions of a real digital services tax (DST) that have been implemented or proposed in multiple countries. France released a bill introducing a DST retroactively to January 1, 2019, UK will introduce a DST in April 2020, and other European countries, such as Spain, Austria, and Italy, are discussing or have proposed a bill mimicking the March 2018 DST proposal from the European Council. While details of the proposed DSTs vary, in general, a DST is a 2-3% tax imposed on the gross revenues of specific digital business models where revenues are linked to the participation of users in the country exercising such taxing right. It also establishes a specified revenue threshold which triggers the DST. The goal of the DST is to capture profits earned by multinationals that reflect value contributed by users of such digital business.  

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Soled & Schmalbeck's Determining An Asset's Tax Basis Absent A Meaningful Transfer Tax Regime

This week, Ariel Jurow Kleiman (San Diego) reviews Determining an Asset's Tax Basis in the Absence of A Meaningful Transfer Tax Regime, a new work by Jay A. Soled (Rutgers) and Richard L. Schmalbeck (Duke), recently published in the Columbia Journal of Tax Law.

Ironically, although death and taxes are the only two certainties in life, the “death tax” is largely voluntary. (Forgive the controversial term—its purpose is rhetorical, not ideological.)  With the estate and gift tax exemption up to $11.18 million per person, the tax’s voluntary nature is truer now than ever before.  In their recent article, Jay Soled and Richard Schmalbeck argue that the transfer tax’s diminution will not only reduce estate and gift tax revenue, but will enable taxpayers to game the income tax as well.

The crux of the authors' argument rests on IRC § 1014(f), which requires that the stepped-up basis of property acquired from a decedent not exceed the property’s value that is reported for estate tax purposes.  This rule creates two counterbalancing incentives for taxpayers appraising an estate’s assets.  First, taxpayers will want to undervalue property to reduce estate tax burdens.  Second, taxpayers will want to overvalue property to obtain a higher basis under § 1014.  When weighing both, the estate tax’s pressures have typically dominated, largely because the tax cannot be deferred until later.  Thus, a robust estate tax mitigates incentives for taxpayers to abuse the already generous § 1014 step-up in basis. 

Continue reading

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Yin's Stanley Surrey And The Tax Legislative Process

This week, Mirit Eyal-Cohen (Alabama) reviews George K. Yin (Virginia), 'Who Speaks for Tax Equity and Tax Fairness?': Stanley Surrey and the Tax Legislative Process (May 2019):

We need more articles like Yin’s. Not only because nowadays it is hard to find papers depicting good-old archival research on intellectual history and history of taxation. I am a speaking as avid fan of both genres as I have written in the past here on the unknown collaboration between Stanley Surrey and Justice Roger Traynor and their idea of preventive tax policy. But Yin’s extensive work with Surrey’s memoir reveals a new aspect of Surrey’s philosophy. There have been numerous articles written about the legendary Stanley S. Surrey, one of the most influential tax professionals of the twentieth century. His work has been cited in over 56,000 papers. And while Surrey passed away in 1984, only in the last 20 years, about 3,000 law review articles broadly and directly conferred, relied upon, or reexamined his work. Although many scholars focused on Surrey’s seminal work on tax policy, specifically the tax expenditures budget, Yin is taking a different approach. He has thoroughly studied Surrey’s life through his memoir and some of his less well-known commentaries to evaluate Surrey’s view of the federal tax legislative process trying to answer the question of what was Surrey’s opinion on the manner tax rules are created in the U.S. and the institution that should speak for tax equity and tax fairness?

Continue reading

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Knoll's The TCJA And The Questionable Incentive to Incorporate

This week, David Elkins (Netanya) reviews a two-part work by Michael S. Knoll (Pennsylvania), The TCJA and the Questionable Incentive to Incorporate, 162 Tax Notes 977 (Mar. 4, 2019), and The TCJA and the Questionable Incentive to Incorporate, Part 2, 162 Tax Notes 1447 (Mar. 25, 2019).

The Tax Cuts and Jobs Act (TCJA) is the most far-reaching tax reform in a generation. The political, and often the academic, discourse regarding the TCJA has tended to focus on the distributional effect of the reform – who gains and who loses from the changes instituted by the act. However, one particular aspect of the TCJA that been largely ignored by the popular press – indeed by most except those who are responsible for advising clients how to arrange their tax affairs – is the seismic shift in the corporation tax regime.

Until the turn of the twenty-first century, U.S. corporate taxation was based upon what is commonly referred to as either the “classic model” or the “double taxation model,” under which corporations pay tax at full rates on their income as it accrues and shareholders pay tax at full rates on dividends when they receive them. The problem with the classic model is that economically the same income is taxed twice. For that reason, during the course of the twentieth century, most other countries moved to integrate their corporation tax structure.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Abramowicz & Blair-Stanek's Contractual Tax Reform

This week, Sloan Speck (Colorado) reviews a new work by Michael Abramowicz (George Washington) & Andrew Blair-Stanek (Maryland), Contractual Tax Reform, 61 Wm. & Mary L. Rev. ___ (2019).

In Contractual Tax Reform, Michael Abramowicz and Andrew Blair-Stanek develop an innovative proposal that would allow private intermediaries to offer alternative tax regimes to subsets of taxpayers. These intermediaries would target specific taxpayers with algorithms developed using artificial intelligence, and these taxpayers then would be able to opt into the particular alternative tax regime offered by the intermediary. The catch is that the overall tax revenue from the intermediary’s customers can’t be less than they would pay, in the aggregate, under the regular tax system. Assuming that internalities aren’t material, this arrangement is Pareto efficient: only taxpayers who prefer the alternative tax regime would choose the intermediary, and total tax revenue would not fall. Everyone’s better off, and no one’s worse off.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Afield's Social Justice And The Low-Income Taxpayer

This week, Hayes Holderness (Richmond) reviews W. Edward Afield (Georgia State), Social Justice and the Low-Income Taxpayer, 64 Vill. L. Rev. __ (2019).

Many, if not most, tax professors and practitioners have been asked whether what we do is only about helping high-income individuals or businesses get out of paying taxes. Instead of offering the customary eye-roll, Ted Afield provides a thoughtful and compelling answer in Social Justice and the Low-Income Taxpayer. Afield’s article provides a detailed exploration of the role of low-income taxpayer clinics (LITCs) in providing clients with tax justice, and thus by extension, social justice. He then advocates for LITCs to be empowered to do more to improve social justice. This important piece should serve as a pillar for any efforts to support and expand LITCs across the country.

Continue reading

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

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

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

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

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kim Reviews Residual Profit Allocation By Income

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Michael Devereux (Oxford), Alan Auerbach (UC-Berkeley), Michael Keen (IMF), Paul Oosterhuis (Skadden), Wolfgang Schön (Max Planck) & John Vella (Oxford), Residual Profit Allocation by Income, a paper of the Oxford International Tax Group, chaired by Michael Devereux (March 2019).

This paper is a draft chapter of a forthcoming book on the taxation of international business profit by the authors to be published by Oxford University Press. The book will study two proposals for international tax reform — one is the destination based cash flow tax, and the second, which is offered in this paper, is a new form of residual profit allocation for transfer pricing analysis.

The authors refer to the new residual profit allocation method as a "Residual Profit Allocation by Income," or RPA-I. It is a category of profit-based methodology that allocates the total profit of a multinational enterprise (MNE) into two parts — the "routine" profit, and the "residual" profit. 

"Routine" profit is the profit a third party would expect to earn for performing a particular set of functions and activities on an outsourcing basis. Such third party does not share in the overall risk of the MNEs and earns no return based on the overall success or failure of the product or business to which its activities relate. Thus, affiliates of MNEs that take limited risk are assigned such routine profit. On the other hand, "residual" profit is an excess return that is associated with the entrepreneurial success or failure of the enterprise. Thus, only entrepreneurial affiliates may participate in the residual profit of the overall enterprise.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Morse's When Robots Make Legal Mistakes

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by Susan C. Morse (Texas), When Robots Make Legal Mistakes, 71 Okla. L. Rev. ___ (2019), and a contribution to Symposium, Lawyering in the Age of Artificial Intelligence.

Robots are all around us.  As we mere humans struggle with basic tasks, robots are churning through documents, making legal decisions, and administering public and private programs.  Due to their ubiquity in legal processes, the patterns they manifest may significantly alter the course of legal development.  Susan Morse, in her recent work on the topic, begins to unpack these patterns, exploring the incentives robots face when making legal decisions.  Specifically, Morse argues that robots tend to follow the path of least resistance, favoring legal decisions that are less likely to be challenged.  In doing so, these artificial agents shift the trajectory of laws’ development, although in what direction it is too early to say.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Fleischer, Hemel & Leff On A Universal Basic Income

This week, David Elkins (Netanya) reviews new works by Miranda Perry Fleischer (San Diego) & Daniel Hemel (Chicago), The Architecture of Basic Income, 86 U. Chi. L. Rev. ___ (2019) and Benjamin M. Leff (American), EITC for All: A Universal Basic Income Compromise Proposal, 25 Wash. & Lee J. Rts. & Soc. Just. __ (2019):

This week saw the posting of two articles discussing the concept of universal basic income (“UBI”). It is interesting to compare and contrast two proposals for what is likely to be a focus of academic and political attention in the near future.

At the most fundamental level, the two articles take different tacks by their choice of how conceptually to integrate UBI into the current tax framework. Fleischer and Hemel compare UBI to a negative income tax. They demonstrate it that the difference between them is merely one of framing: a UBI financed by a progressive income is functionally equivalent to a negative income tax. One significant difference is that the negative income tax – like the positive income tax – is calculated on the family level, whereas UBI is calculated on the individual level. Fleischer and Hemel argue that a cash grant to each citizen and lawful permanent resident, regardless of age, would better serve the goals of reducing poverty that would a payment to families.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Pratt's Tax Deductions for Fertility Treatment Costs

This week, Sloan Speck (Colorado) reviews a new work by Katherine Pratt (Loyola—LA), The Curious State of Tax Deductions for Fertility Treatment Costs, 28 S. Cal. Rev. L. & Soc. Just. ___ (2019).

In The Curious Case of Tax Deductions for Fertility Treatment Costs, Katie Pratt elaborates the patchwork and unsatisfying treatment of assisted reproductive technologies (ARTs) under the current law governing deductions for medical expenses under § 213. Specifically, Pratt details recent court decisions in Magdalin, Longino, and Morrissey that severely circumscribe the scope of “medical care”—and thus the deductibility of related expenses—in the ART context. To some extent, Pratt’s argument illustrates the complications that flow from enacting a C- statute, then subjecting it to a variety of D+ interpretations. Hard facts may make bad law, but, at least in Magdalin and Morrissey, the facts aren’t the primary problem. Pratt appropriately concludes by proposing reasonable amendments to the statutory definition of “medical care” that would recognize the current landscape with regard to ARTs.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Glogower's A Constitutional Wealth Tax

This week, Hayes Holderness (Richmond) reviews Ari Glogower (Ohio State), A Constitutional Wealth Tax:

As media coverage, politicians, commenters, and last week’s SSRN Roundup indicate, wealth taxation is hot right now. As various arguments emerge about the constitutionality of a wealth tax in the U.S., Ari Glogower presents a new view on the question in A Constitutional Wealth Tax. At the core of his argument, Glogower invokes substance-over-form reasoning: wealth is already constitutionally taxed indirectly through the income tax, so there should not be a problem taxing wealth directly.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kim Reviews Grinberg's International Taxation In An Era of Digital Disruption

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Itai Grinberg (Georgetown), International Taxation in an Era of Digital Disruption: Analyzing the Current Debate. 

Have you heard of "GAFA"? It is a commonly used acronym in Europe, representing the four most powerful American technology companies, Google, Apple, Facebook, and Amazon. Recent legislative movement in Europe to impose a Digital Services Tax (DST) on gross revenue on a limited set of digital businesses targets those tech giants in effect, although the language of the statute appears to apply generally to search engines, online marketplaces, and social media firms. Whether you agree with the DST or not, it is evident that the taxation of the digital economy is one of the hottest topics in international tax policy these days. Itai Grinberg's new article, International Taxation in an Era of Digital Disruption: Analyzing the Current Debate, is an excellent piece introducing the current debate and the US perspective on European tax changes on digital economy and discussing three important policy options to reform the international tax on the digital sector.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Wallace Reviews Aprill's Enterprise Zones

This This week, Clint Wallace (South Carolina) reviews an old work (newly posted to SSRN) by Ellen Aprill (Loyola-L.A.), Caution: Enterprise Zones (66 S. Cal. L. Rev. 1341 (1993).

Twenty five years ago we stood at the dawn of the age of “targeted tax cuts.” President Clinton introduced that terminology to the political lexicon, and his administration added all variety of politically appealing tax breaks to the Code, seeking to expand access to college, help make healthcare more affordable, and promote home ownership, among other goals. One version of political-rally-friendly tax policy that the Clinton administration promoted with particular enthusiasm was geographically targeted tax breaks.  In 1993, Prof. Aprill published an article (new to SSRN this week) critiquing and offering guidance on how to effectively design this kind of tax incentive.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews The Impact of Soda Taxes

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by Stephen Seiler (Stanford), Anna Tuchman (Northwestern) & Song Yao (Minnesota), The Impact of Soda Taxes: Pass-through, Tax Avoidance, and Nutritional Effects (Stanford University Graduate School of Business Research Paper, No. 19-12).

If a tax could be considered trendy, the label would aptly apply to the soda tax.  In 2013, no U.S. city levied a tax on sugary drinks. Today, seven major cities do so (see also here). Such taxes have also been enacted at the national level in a diverse group of countries including Mexico, France, and Sri Lanka. The tax’s proliferation heightens the need for data on its efficacy, especially when implemented at the local level. Stephan Seiler, Anna Tuchman, and Song Yao’s recent work on Philadelphia’s tax on sugar-sweetened beverages responds to such a need. Their research offers valuable insights for public health advocates and policymakers considering a soda tax, whether as a source of revenue or as a response to increasing obesity rates.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Hemel's The State-Charity Disparity Under The 2017 Tax Law

This week, Mirit Eyal-Cohen (Alabama) reviews Daniel Hemel (Chicago), The State-Charity Disparity Under the 2017 Tax Law, 58 Wash. U. J.L. & Pol'y ___ (2019).

This Article is especially timely in light of continuous efforts by states (recently by Connecticut, New Jersey, New York, and Oregon) to create state tax credits for charitable contributions to public education or public health. These tax credits reduce the state tax liability for Federal purposes and might be helpful in alleviating the effect of the new cap on individual state and local tax (“SALT”) deductions imposed by the Tax Cuts and Jobs Act of 2017 (and was also part of the 2016 Clinton tax proposal). While the IRS has allowed in the past such charitable contributions as deductible for Federal purposes, Treasury recently proposed regulation to reverse this trend requiring taxpayers to decrease their charitable contribution deduction by the value of SALT benefits received for their contribution, with a “de minimis” rule ignoring state tax benefits worth less than 15% of the donation.

Hemel makes a case against the disparity in the limitations on charitable contributions (up to 60% of AGI) compared to those placed on SALT payments ($10,000 cap a year).  He provides several justifications for removing such differential tax treatment. First, he points out to the fact that both public charities and state and local governments are primarily in the business of providing education, health, and social services. But more so, in Hemel’s eyes, the fundamental reasons for supporting charities such as promoting pluralism, creating positive externalities, and delivering specified knowledge, are equally if not more present in the case of state and local government organizations. SALT can be seen as simply the price of goods and services that state and local governments provide. Accordingly, from a measurement-of-income perspective, Hemel suggests that SALT should represent costs of services only up to a point, after which they constitute a reduction in consumption plus savings. Indeed, today this is encompassed somewhat in the Standard Deduction and will continue to do so with its exponential recent increase in 2018. Taking Hemel’s implicit analogy a step forward could be providing a differentiated Standard Deduction at the Federal level, adjusted for each state for its value worth of services. Ignoring issues of valuation and political brawl, this could be an efficient way to coordinate more equitably the services (measured via local taxes) of each state to their Federal deductibility. 

Continue reading

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Expanded Worldwide Versus Territorial Taxation After The TCJA

This week, David Elkins (Netanya) reviews a new work by J. Clifton Fleming (BYU), Robert J. Peroni (Texas) & Stephen E. Shay (Harvard), Expanded Worldwide Versus Territorial Taxation after the TCJA, 161 Tax Notes 1173 (Dec. 3, 2018).

Like individuals who are citizens or residents of the United States, domestic corporations must report and pay U.S. tax on their worldwide income. However, exposure to U.S. worldwide taxation has always been more theoretical than real. Because under the Code corporate residence is determined almost exclusively by place of incorporation, avoiding U.S. tax on foreign-source earnings usually requires nothing more than operating abroad via a subsidiary registered in a foreign jurisdiction. As a foreign corporation, the subsidiary is liable for U.S. tax only on its U.S.-source income. This arrangement does not allow domestic corporations to completely escape tax on their foreign-source earnings. When the foreign subsidiary distributes its earnings to its domestic parent or when the domestic parent sells shares in the foreign subsidiary, the gain is in principle subject to U.S. tax. Thus, prior to the enactment of the 2017 Tax Cuts and Jobs Act (TCJA), the U.S. international corporate tax regime was in practice one of deferral.

Continue reading

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Shay's U.S. International Tax Reform

This week, Sloan Speck (Colorado) reviews a new work by Stephen Shay (Harvard), The US International Tax Reforms: Competition and Convergence, Pay-Offs and Policy Failures, 46 Intertax 905 (2018).

In The US International Tax Reforms: Competition and Convergence, Pay-Offs and Policy Failures, Steve Shay explains and analyzes, for an international audience, the December 2017 changes in U.S. international tax law. Shay casts these changes not as “fundamental” reform, but rather as a headline domestic corporate tax rate cut coupled with an agglomeration of international revenue raisers and incentives. Overall, these changes largely represent a reshuffling of the deck (perhaps after scribbling furiously on several cards with Magic Marker), as well as a missed opportunity. Nowhere does the new law squarely address the taxation of foreign sellers into domestic markets—“the most important defect” in current international tax law, according to Shay.

Shay begins by deftly summarizing the political context of the December 2017 changes, with particular attention to the relative unimportance of international tax policy, writ large, compared to the budgetary machinations necessary to usher the bill through the reconciliation process. 

Continue reading

Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Azam & Mazur's Cloudy With A Chance Of Taxation

This week, Hayes Holderness (Richmond) reviews Rifat Azam (Radzyner) & Orly Mazur (SMU), Cloudy with a Chance of Taxation, 21 Fla. Tax Rev. ___ (2018):

The growth of cloud computing is one of the most significant commercial developments facing modern consumption tax regimes. The growth is significant in part for the problem it presents: tax regimes designed for the consumption of goods and services transferred in a physical world struggle to adapt to virtual transactions. Often the analysis of this problem has focused on the what and the where of cloud computing. Tax authorities often have difficulty characterizing cloud computing offerings as either goods or services, and that characterization can drive tax consequences. Additionally, given the virtual nature of cloud computing, it can be difficult to figure out where the consumption takes place (or even where the offering originates from) and thus who has the right to impose tax; how many places have you accessed Spotify from?

Continue reading

Weekly SSRN Tax Article Review And Roundup: Layser Reviews Erbsen's The Constitutional Connection Between State Tax Authority And Personal Jurisdiction

This week, Michelle Layser (Illinois) reviews Allan Erbsen (Minnesota), Wayfair Undermines Nicastro: The Constitutional Connection Between State Tax Authority and Personal Jurisdiction, 128 Yale L.J.F. __ (2019).

With the holiday season in full swing, most people tax professors have spent at least some time shopping on the internet and contemplating the impact of South Dakota v. Wayfair. By now, we’re all well versed in the basics. Wayfair is a milestone tax law case that sets forth a new interpretation of the Commerce Clause that permits states to enforce sales and use tax collection obligations against out-of-state online merchants. Right? Well, sort of.

According to Professor Allan Erbsen, labels like “tax law case” aren’t particularly helpful, and the doctrinal impact of Wayfair may extend well beyond the territorial borders of tax law—or even Commerce Clause jurisprudence. Erbsen argues that Wayfair’s Commerce Clause holding justifies reconsideration of the Court’s 2011 decision in J. McIntyre Machinery v. Nicastro, a Due Process case that had nothing to do with tax.

Continue reading