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.

In the context of tax compliance, legal calculators are essentially algorithmically programmed, automated tax advisors that perform mathematical calculations and attempt to calculate taxpayers’ legal consequences. It sounds technical, but anyone who has ever used TurboTax is familiar with the basic concept. The legal calculator “asks” the user questions about their profile and economic activities, and then it generates advice about what income might be taxable, what deductions or credits may be available, whether it makes sense for a taxpayer to itemize, and so forth.

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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.

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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.

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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.

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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. 

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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.

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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.

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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.

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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.  

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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. 

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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?

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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. 

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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.

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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. 

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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?

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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.

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Weekly SSRN Tax Article Review And Roundup: Kim Reviews Morse's International Cooperation And The 2017 Tax Act

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Susan Morse (Texas), International Cooperation and the 2017 Tax Act, 128 Yale L.J. F. 362 (2018).

Among all the topics addressed in the 2017 Tax Cuts and Jobs Act (the “TCJA”), provisions regarding international tax law might be the most challenging provisions for non-experts. For those who simply expected that the worldwide tax system would be converted to the territorial tax system, the provisions introduced by the TCJA must have been somewhat puzzling, especially because the discussion after the reform has been focused more on a few more new acronyms that might not even be relevant to the territorial tax system. Susan Morse's new article, International Cooperation and the 2017 Tax Act, is an excellent guide that assists readers in understanding the important international tax provisions in the TCJA and the rationale behind the provisions. One of the great things about the article is that it explains the new rules against the backdrop of the ongoing dynamics in international tax policy — that is, the interplay between competitiveness and cooperation among the players. 

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Oei & Ring's Tax Law’s Workplace Shift

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by Shu-Yi Oei (Boston College) and Diane M. Ring (Boston College), Tax Law’s Workplace Shift.

Practically speaking, the new § 199A goes live this coming filing season, when taxpayers witness the effect of the supersized pass-through business deduction.  Tax experts predict all manner of distortion and gaming.  In particular, many worry that the provision creates strong incentives for workers to shift from employee to independent contractor status.  For some, this means abandoning crucial worker protections and increasing employment instability; for others, it may simply be tax gaming. 

In response to this concern, Shu-Yi Oei and Diane Ring offer a measured analysis of § 199A’s likely impact on worker classification. The authors avoid brash forecasting and instead consider various factors that affect the likelihood of such a shift, including incentives and guardrails built into § 199A, protections existing under the labor law, and current employment trends. In addition to quelling the direst doomsday predictions, the article provides a useful normative framework for those assessing outcomes under the new law.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Estreicher & Wallace's Equitable Health Savings Accounts

This week, Mirit Eyal-Cohen (Alabama) reviews Samuel Estreicher (NYU) & Clint Wallace (South Caroline), Equitable Health Savings Accounts, 55 Harv. J. on Leg. ___ (2019):

In light of recent reform debates, this Article timely provides a detailed analysis of Health Savings Accounts (HSAs). HSAs are designed to help control health costs while promoting the “patient-as-consumer model” and allowing taxpayers to select their desired healthcare provider.  Today, taxpayers enrolled in high-deductible health insurance plans receive “an above-the-line” tax deduction for contributions made to HSAs. These contributions are also deductible from the Federal Insurance Contributions Act (“FICA”) tax base and are not subject to Social Security and Medicare taxes (such deduction for FICA purposes is not available for 401(k) or IRA contributions). Generally speaking, high-deductible plans put patients’ personal funds at stake for ordinary healthcare costs, thus, increase the price sensitivity for healthcare services much more than in non-high-deductible plans with flat co-payments. The HSA funds can be utilized for any “qualifying medical expenses” including prescription drugs, doctors’ visits, and various procedures but excluding payments for medical insurance and over-the-counter medications. Any gains derived from investments made to HSAs are exempt from income tax if those funds are used to cover medical expenses. Funds in HSAs can be carried over from year to year, even if the taxpayer decides to switch to a plan that is not a high-deductible health plan. HSA withdrawals for non-healthcare spending are subject to income tax and an additional excise tax of 20%. The HSA model rests on the notion that by making patients price-aware and giving them greater control over their health spending, HSAs allow market forces to improve pricing and the healthcare delivery system as a whole.

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

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

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

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

 

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

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

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

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Kahn's GoTaxMe — Crowdfunding And Gifts

This week, Hayes Holderness (Richmond) reviews Jeffrey H. Kahn (Florida State), GoTaxMe: Crowdfunding and Gifts, 22 Fla. Tax Rev. ___ (2019).

What is a “gift”? Webster’s Dictionary defines “gift” as “something voluntarily transferred by one person to another without compensation” (I kid, I kid). In GoTaxMe: Crowdfunding and Gifts, Professor Jeffrey Kahn challenges the reader to define “gift” for federal income tax purposes in a more robust fashion than simply as transfers made with detached and disinterested generosity. Anyone who has taken a basic federal income tax class knows that § 102 excludes gifts from gross income but fails to define what gifts are. The Supreme Court filled this gap with the Duberstein “detached and disinterested generosity” standard, noting that in determining whether any particular transfer is a gift, “the most critical consideration . . . is the transferor’s ‘intention.’” Professor Kahn uses the example of the (currently) $448,162 donated by 11,709 people to former FBI agent Peter Strzok through the crowdfunding site GoFundMe.com to argue that the Duberstein standard’s focus on the transferor’s intention fails at the edges.

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Weekly SSRN Tax Article Review And Roundup: Layser Reviews Medical Necessity — A Higher Hurdle for Marginalized Taxpayers?

This week, Michelle Layser (Illinois) reviews Julie Furr Youngman (Washington & Lee) & Courtney D. Hauck (J.D. 2021, Columbia), Medical Necessity: A Higher Hurdle for Marginalized Taxpayers?, 51 Loy. L.A. L. Rev. ___ (2018).

Many recent advancements in transgender rights have been followed by setbacks. Obama era rules that protected transgender patients from discrimination have been rolled back, and just last week the Trump administration announced plans to define gender for federal civil rights laws as biological, immutable and determined at birth. Now a new article by Julie Furr Youngman and Courtney Hauck warns that a 2010 U.S. Tax Court case that upheld the medical expense deduction for gender affirmation surgery may come back to haunt the transgender community if its dicta is interpreted as requiring proof of medical necessity. (Note: For definitions and terms preferred by the transgender community, please see the National Center for Transgender Equality.)

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Schön's Taxation And Democracy

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by Wolfgang Schön (Max Planck), Taxation and Democracy, 72 Tax L. Rev. ___ (2019).

Wolfgang Schön’s latest article raises a question both timely and eternal—what principles justify taxation of a minority group under majority rule?  Schön starts from the premise that taxation is rendered legitimate by the democratic process.  However, although democracy may transform taxes into voluntary transfers at the aggregate level, it cannot do so at the individual level.  Thus, nations need constitutional protections in order to safeguard the rights of the individual or the minority against the collective majority.  For modern nation states, the question of appropriate protection is particularly germane to the taxation of resident aliens, a problem that Schön adeptly tackles.    

Schön distills taxpayer protections into a dyadic framework, with safeguards being based on either “consent” or “content.” 

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Schmalbeck & Zelenak's The NCAA And The IRS

This week, Mirit Eyal-Cohen (Alabama) reviews Richard Schmalbeck (Duke) & Lawrence Zelenak (Duke), The NCAA and the IRS: Life at the Intersection of College Sports and the Federal Income Tax, 91 S. Cal. L. Rev. ___ (2018).

This Article is right down my alley. Athletics pretty much dominates my household of four boys (five, if you count my husband) that eat, sleep, and breathe all types of sports. Also, living in Tuscaloosa, AL, home of the Crimson Tide NCAA Champion leaves a mark. Bama’s beloved coach Nick Saban is often the subject of many discussions in my tax classes. So when I find something that interconnects both business (tax) and pleasure (sports), such as this Article, I grab the opportunity with both hands.

This Article offers a detailed account of the history and current status of the intersection between federal tax laws and college sports. The authors begin by stating that for many decades, college athletics enjoyed preferential tax treatment due to either the IRS’s lack of enforcement or direct tax benefits provided by Congress to college sports. This status quo was maintained until last year with the enactment of the Tax Cuts and Jobs Act of 2017 (“The 2017 Act”) that increased the tax burden on college athletics in several aspects. The authors seem optimistic about this change, yet recognize, that no similar signs of transformation have yet been observed from the IRS that has continued its lax enforcement policy regarding college sports.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Brunson's Paying for Gun Violence

This week, David Elkins (Netanya) reviews a new paper by Samuel D. Brunson (Loyola-Chicago), Paying for Gun Violence.

In Paying for Gun Violence, Professor Samuel Brunson notes that that although gun violence costs the United States many billions dollars annually, political and Constitutional restraints continue to prevent effective gun regulation. Against this background, he proposes a Pigouvian tax on guns, with the goal of forcing gun owners to internalize those costs. Under his proposal, the purchase of a firearm would be subject to an excise tax and the possession of a firearm would be subject to a property tax. He argues that while such a tax would not be barred by the second amendment, a federal property tax on guns would run afoul of the requirement that direct taxes be apportioned among the states in proportion to their populations. Therefore, he suggests that the tax be imposed not on the federal level but on the state level. He writes that while the tax is unlikely to result in any significant reduction of gun ownership, it will at least make society whole by compensating it for the damage cause by gun violence.

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Cauble's Taxing Selling Partners

This week, Sloan Speck (Colorado) reviews a new work by Emily Cauble (DePaul), Taxing Selling Partners, 94 Wash. L. Rev. ___ (2019).

In Taxing Selling Partners, Emily Cauble ably details various shortcomings and inconsistencies in the taxation of sales of partnership interests, then proposes a concrete and clear remedy to these myriad problems. Specifically, Cauble examines four scenarios in which the sale of a partnership interest yields a tax result different from the sale of that partnership’s assets. Two of these scenarios draw on longstanding issues involving partner-partnership divergences in holding period and use, while the other two scenarios engage changes in law from December 2017. The first of these changes closes a loophole involving sales of partnership interests by non-U.S. persons—a fix that Cauble argues is incomplete. The other change limits the availability of excess business losses, though, as Cauble notes, not necessarily on transfers of partnership interests. To solve these problems, Cauble advocates aligning the tax consequences of sales of interests and assets by, more or less, looking through to assets when an interest is sold.

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Zelinsky's Dormant Commerce Clause Lessons From Wayfair And Wynne

This week, Hayes Holderness (Richmond) reviews Edward A. Zelinsky (Cardozo), Comparing Wayfair to Wynne: Lessons for the Future of the Dormant Commerce Clause,  22 Chap. L. Rev. ___ (2019).

South Dakota v. Wayfair captivated the state and local tax (“SALT”) world this past summer, as the Supreme Court abandoned the dormant Commerce Clause’s (“DCC”) decades-old physical presence rule for sales and use tax collection obligations. The 5-4 decision contained seemingly odd bedfellows: Justice Ginsburg joined Justices Alito, Gorsuch, Thomas, and Kennedy in the majority, and Chief Justice Roberts corralled Justices Sotomayor, Kagan, and Breyer into his dissent. But DCC jurisprudence is an odd area of SALT doctrine, and Professor Edward Zelinsky tactfully sorts the views of the various Justices in his essay, exposing the major fault lines between their various views. With this sorting, Zelinsky is able to answer whether Wayfair’s abandonment of the physical presence rule is unique or whether it foreshadows danger for other parts of the SALT DCC jurisprudence. Spoiler alert: the DCC is not going anywhere fast.

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Shakow's Taxing Entities That Live On A Blockchain

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by David J. Shakow (Penn), The Tao of The DAO: Taxing an Entity that Lives on a Blockchain, 160 Tax Notes 929 (Aug. 13, 2018).

Much as governments have struggled for centuries to harness income flows transcending national borders, today governments face the novel challenge of taxing income flows that transcend the boundaries of the tangible world.  Specifically, blockchain technology has enabled cyberspace-based financial arrangements that trigger seemingly endless tax and regulatory quandaries. (See, e.g., here and here.)  David Shakow tackles one such quandary in his recent Tax Notes article, considering the tax treatment of income earned through a blockchain entity known as a decentralized autonomous organization (DAO).

Shakow’s article begins with a mercifully clear explanation of the formation, structure, and eventual demise of a specific DAO, called “The DAO.”  Formed in 2016 on the Ethereum blockchain platform, The DAO collected $150 million to invest in startup enterprises.  Under The DAO’s terms, anonymous investors would vote on which enterprises to invest in and would share in the profits.  All transactions occurred without the need for human involvement via the operation of “smart contracts” recorded in the Ethereum blockchain.  Human interveners were only necessary to confirm the identities of startup companies that submitted proposals for investment by The DAO.

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Weekly SSRN Tax Review And Roundup: Mazur Reviews Lederman's Does Enforcement Reduce Voluntary Tax Compliance?

This week, Orly Mazur (SMU) reviews a new work by Leandra Lederman (Indiana), Does Enforcement Reduce Voluntary Tax Compliance?, 2018 BYU L. Rev. ___ (2018).

Does tax enforcement reduce voluntary tax compliance by taxpayers? The answer to this question can have significant implications for tax compliance efforts by the IRS and other tax administrations. Recently, a number of scholars have argued that the answer to this question is yes – that tax enforcement and deterrence negatively affect tax compliance by “crowding out” preexisting intrinsic motivations to comply with the tax laws. However, Leandra Lederman’s new work provides compelling evidence to the contrary. Relying on empirical literature, Lederman’s article challenges this assertion and concludes that tax enforcement does not reduce voluntary tax compliance. In fact, enforcement generally fosters tax compliance.

The work begins by explaining the crowding-out theory and its potential application in several non-tax contexts. Although some existing literature predicts that rewards or punishment can, in some cases, reduce intrinsic motivation to engage in a desired behavior, Lederman determines that it is hard to draw firm conclusions from existing studies and, ultimately, these results are not directly helpful in answering the question of whether enforcement reduces voluntary compliance in the tax context.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Black's Section 511, Innovation, And Jobs

This week, Mirit Eyal-Cohen (Alabama) reviews Steve Black (Texas Tech), Do You Want Innovation and Jobs? Repeal § 511, 57 Washburn L.J. 431 (2018).

This essay begins with a provocative title. In the name of innovation and job growth, the author advocates for the elimination of tax on unrelated business income (UBIT) imposed under § 511. UBIT is essentially tax on income of an exempt organization that if the organization is involved in the trade or business that is not substantially related to its exempt purpose.

The author provides helpful history on the passage of UBIT noting that in the past many universities were engaged in commercial activities while still pursuing their charitable purposes. In the late 1940s, educational institutions were involved in fields like banking, real estate, and mainstream commerce. They invested in enterprises such as department stores, factories, and real estate holdings. They owned citrus groves, movies theatres, and cattle ranches. For example, Mueller Macaroni Company, a pasta business that was donated to NYU, created “macaroni profits” that went untaxed by the University. Yet, soon after competitors and pasta rivals (the “macaroni monopoly”) uproared against unfair competition portraying nonprofits as having an unfair advantage with those entities that paid their full share of tax. 

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Shaviro's The New Non-Territorial U.S. International Tax System

This week, David Elkins (Netanya) reviews two new papers by Daniel N. Shaviro (NYU), The New Non-Territorial U.S. International Tax System, Part 1, 160 Tax Notes 57 (July 2, 2018); and The New Non-Territorial U.S. International Tax System, Part 2, 160 Tax Notes 171 (July 9, 2018).

Commentators discuss two different models of international tax regimes. Under a worldwide system, residents are taxed on their foreign-source income and receive a credit for any foreign income taxes paid. Under a territorial system, foreign-source income is exempted and foreign taxes are ignored. Regimes that contain elements of a worldwide regime along with elements of a territorial regime are often described as hybrid systems. It has been claimed that the Tax Cuts and Jobs Act (TCJA) moved the United States from a worldwide system to a territorial system and thereby aligned the U.S. tax regime with that of its major trading partners. 

In a two-part report on the international tax aspects of TCJA, Professor Daniel Shaviro argues that not only is this before-and-after description of U.S. tax regime inaccurate but also that the categories themselves are analytically useless.

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Haneman's The Home Mortgage Interest Deduction

This week, Sloan Speck (Colorado) reviews a new work by Victoria J. Haneman (Creighton), Retrenchment, Temporary-Effect Legislation, and the Home Mortgage Interest Deduction (2018).

In Retrenchment, Temporary-Effect Legislation, and the Home Mortgage Interest Deduction, Victoria Haneman assesses the tax legislation enacted in December 2017 as it relates to a favorite target of tax policy opprobrium, the home mortgage interest deduction (MID). Haneman argues that the 2017 changes that affected the MID are, at their core, regressive. For this purpose, the relevant provisions are the doubling of the standard deduction and the limitation of deductible mortgage interest on new loans to principal amounts of $750,000 instead of $1 million. (Presumably, one also could include the effective limitation of deductible mortgage interest on old loans to principal amounts of $1 million instead of $1.1 million.) Notwithstanding Haneman’s dim view of the 2017 changes, she sees brightness at the end of the tunnel: As enacted, these changes sunset after 2025, forcing legislators to reconsider the MID and perhaps repeal it wholesale. Although Haneman wisely doesn’t guarantee that dawn will bring an enlightened legislature, she sees value in opening a “window of opportunity” through which the rays of genuine tax reform could shine. Finally, Haneman proposes replacing the MID with a limited tax credit for homeownership based on the purchase price of a taxpayer’s home.

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Weisbord's Postmortem Austerity And Entitlement Reform

This week, Ariel Jurow Kleiman (San Diego) reviews a new essay by Reid K. Weisbord (Rutgers), Postmortem Austerity and Entitlement Reform, 71 Stan. L. Rev. Online 132 (2018).

As readers know well, Social Security and Medicare are on a path to eventual insolvency, and entitlement reform is inevitable. For the most part, reform proposals tend to exist within the familiar bounds of tax hikes or benefit cuts. In his new essay on the topic, Reid K. Weisbord offers a bold reform proposal that includes elements of both, but is somehow not exactly either.  

Weisbord starts by dismissing the possibility of a broad-based tax increase to fund entitlements. A tax increase is unlikely in the near future, he argues, because history has witnessed a long-term trend of steadily declining tax rates in the United States. In addition, he notes, U.S. citizens are tax averse, often failing to recognize the connection between tax payments and valued public services. Under such conditions, cutting benefits may be politically more palatable than raising taxes. However, cutting benefits harms individuals who relied on Social Security and Medicare in planning for old age. To solve this dilemma, Weisbord proposes a novel policy of “postmortem austerity.” 

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Weekly SSRN Tax Review And Roundup: Mazur Reviews Ordower's Taxing Others In The Age Of Trump

This week, Orly Mazur (SMU) reviews a new article by Henry Ordower (Saint Louis), Taxing Others in the Age of Trump: Foreigners (and the Politically Weak) as Tax Subjects, 62 St. Louis U. L.J. 157 (2018).

Throughout the Trump administration, we have witnessed significant tax cuts with additional potential tax cuts currently being considered. Given this anti-tax political climate, how can the government collect additional revenues to fund spending programs? Henry Ordower’s timely new work considers one way that this may be done by this administration: by imposing U.S. taxes either directly or incidentally on foreigners and other politically weak groups.

To demonstrate potential taxes imposed on foreign interests, the article first explores methods that this administration may use to tax foreigners, including the use of direct taxes and tributes, imposing tariffs or using border adjustments, and restricting investment incentives. However, as Ordower correctly notes, many of these methods of taxing foreigners would be difficult to enforce and are impractical. Even measures such as tariffs and renegotiating treaties to increase withholding taxes and modify other, existing investment incentives, are unadvisable given that they potentially also adversely affect U.S. interests. Ordower’s view is supported by many economists, who have criticized the tariffs recently announced by President Trump as hurting domestic interests by raising prices on consumers, destroying American jobs, and undermining global trade.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Borden's Effective Tax Rates And Choice-Of-Entity Considerations Under The 2017 Tax Act

This week, Mirit Eyal-Cohen (Alabama) reviews Bradley T. Borden (Brooklyn), Income-Based Effective Tax Rates and Choice-of-Entity Considerations Under the 2017 Tax Act (July 2018).

How does the Tax Cuts and Jobs Act of 2017 (TCJA) affect small business owners? According to Borden, the new corporate tax rate and new deduction for qualified business income in the TCJA greatly complicates the choice-of-entity landscape. Prior to the TCJA, businessmen could choose between corporations and hybrid passthrough entities that combined the benefits of limited liability and one level tax. Marginal corporate income tax rates were close to those of individuals, but the taxation of dividends increased the effective corporate tax rates higher than the individual rate across all income levels. Thus, for the majority of small businesses the ideal choice-of-entity was the passthrough structure. Yet, Borden claims that the TCJA nullifies this general rule by muddling choice-of entity considerations for small businesses and entails more tax planning in order to get the most favorable effective tax rates. Post-TCJA, choice-of-entity decisions will be more nuanced, on a case-by-case basis, and preferences will likely be highly situational. 

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Weekly SSRN Tax Article Review And Roundup: Glogower Reviews Oei & Osofsky's Constituencies And Control In Statutory Drafting

This week, Ari Glogower (Ohio State) reviews a new work by by Shu-Yi Oei (Boston College) and Leigh Osofsky (North Carolina), Constituencies and Control in Statutory Drafting: Interviews with Government Tax Counsels, 104 Iowa L. Rev. __ (2019).

How do stylistic drafting choices affect the administration and substance of the tax law? One might suppose that mere questions of style do not matter at all, as long as the provisions operate as intended. Shu-Yi Oei and Leigh Osofsky’s new work challenges this assumption, and sheds new light on the implications of these stylistic choices for the tax system. When it comes to drafting of tax statutes, it turns out, form may in fact matter.

The work begins by reviewing the process for the production of tax statutes, and the role of various cooks in the tax law kitchen, including House and Senate members, their legislative counsel, the House Committee on Ways and Means, the Senate Committee on Finance, the IRS and Treasury, the JCT, and outside interest groups and lobbyists. The work then provides a topography of the basic drafting choices these different actors face. 

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Christians's Introduction to Tax Policy Theory

This week, Sloan Speck (Colorado) reviews a new work by Allison Christians (McGill), Introduction to Tax Policy Theory (2018).

In Introduction to Tax Policy Theory, Allison Christians fulfils the Herculean task set forth in her title with deft grace and critical perspective. Christians’s short paper first elucidates three general goals of taxation from the taxing authority’s perspective, which she describes as state-building, internal management, and negotiated expansion. Then, Christians juxtaposes these goals with three metrics well-known among tax policy aficionados: equity, efficiency, and administrative capacity (which easily could be “simplicity”). Out of this analysis, Christians calls for the tax policy community to think and reflect on fundamental questions of approach and methodology—and to acknowledge the “discrepancies and weaknesses” in conventional approaches to tax policy.

Christians’s taxonomy of the goals of taxation is a major contribution, although certain to engender disagreement. Some dissention is inevitable when parsing all of human experience into three bins, each labeled with two words, and Christians presents her “imperfect” but “adequate” categories as poles, or touchstones, rather than as discrete silos.

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