TaxProf Blog

The IRS Scandal, Day 9

• Election Law Blog:  Dept. of Profoundly Dumb PR Moves: IRS Edition, by Rick Hasen
• L.A. Times:  IRS Problem Started with Vague Tax Exemption Rules
• Legal Ethics Forum:  IRS Scandal: Where Were the IRS and WH Lawyers?, by John Steele
• Mother Jones:  Blame Congress For the IRS-Tea Party Mess
• Tax Analysts Blog:  Lois Lerner Must Resign, by David Cay Johnston
• Tax Analysts Blog:  Scandal, Scandal, Scandal, by Christopher Bergin
• Washington Post op-ed:  An ‘Unthinkable’ IRS Scandal? More Like Unavoidable, by Joseph J. Thorndike

Prior TaxProf Blog coverage:

• IRS Admits to Targeting Conservative Groups in 2012 Election (May 10, 2013)
• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling (May 11, 2013)
• Schmalbeck on the IRS 'Targeting' of Conservative Groups (May 12, 2013)
• The Deepening IRS Scandal (May 13, 2013)
• The IRS Scandal, Day 5 (May 14, 2013)
• Jon Stewart and Vic Fleischer on the IRS Scandal (May 14, 2013)
• Inspector General: Ineffective IRS Management Allowed Agents to Target Conservative Groups (May 14, 2013)
• The IRS Scandal, Day 6 (May 15, 2013)
• Ellen Aprill, The TIGTA Report on the IRS Scandal: Questions About the IRS and About the Report (May 15, 2013)
• Phillip Hackney, The TIGTA Report on the IRS Scandal: Be on the Lookout for False Partisan Witchunts (May 15, 2013)
• The IRS Scandal, Day 7 (May 16, 2013)
• The IRS Scandal, Day 8 (May 17, 2013)

FATCA: Toward a Multilateral Automatic Information Reporting Regime

Joanna Heiberg (J.D. 2013, Washington & Lee), Note, FATCA: Toward a Multilateral Automatic Information Reporting Regime, 69 Wash. & Lee L. Rev. 1685 (2012):

This Note will argue that international cooperation is essential for successful FATCA implementation. Part II will provide background information on offshore tax evasion and existing U.S. mechanisms for international tax enforcement. Part III will explain key FATCA provisions, and Part IV will discuss concerns regarding FATCA as originally enacted. Finally, Part V will introduce the proposed intergovernmental approach to FATCA and argue that international cooperation and development of standardized requirements will mitigate FATCA concerns and facilitate its implementation. Part V also argues that abandonment of the U.S. policy of citizenship-based taxation is necessary to achieve an efficient multilateral FATCA regime.

UC-Hastings Hosts Northern California Tax Roundtable Today

UC-Hastings hosts the Spring 2013 Northern California Tax Roundtable today with these papers:

Heather Field (UC-Hastings), Tax Planning and the Ethical Tax Lawyer
Commentator:  Caroline Chen (Santa Clara)

David Gamage (UC-Berkeley), On Double-Distortion Arguments, Distribution Policy, and the Optimal Tax Mix
Commentator: Susie Morse (UC-Hastings)

Stu Karlinsky (Pacific Rim Tax Institute), Back to the Future
Commentator: Mark Gergen (UC-Berkeley)

Rasmusen: The Meaning of 'Value' for Estate & Gift Tax Purposes

Eric B. Rasmusen (Indiana University, Kelley School of Business), The Meaning of 'Value' for Gift and Estate Tax Donee Limitations in § 6324(B): An Amicus Brief for Marshall v. Commissioner:

In 1995, J. Howard Marshall II made a gift to Elaine Marshall worth some $43 million at the time of transfer. The IRS assessed gift tax against his estate, which failed to pay. In 2008 the IRS assessed gift tax of $74 million against donee Elaine Marshall, which exceeds $43 million because of the interest accumulated since 1995 but is less than the $81 million the gift would compound to at 5% per year. Does the limitation on donee liability to “the value” of the gift imposed by § 6324(b) mean to “the original amount of the gift” or to “the value of the gift at the time of eventual tax payment”? In effect, that is the issue in Marshall v. Commissioner, which is now before the 5th Circuit. The SD Texas and the 11th Circuit went one way; the 3rd and 8th Circuits went the other way on the issue. This paper is an amicus brief for that case and, I hope, a good example of how economics can inform and simplify law.

Lang: Tax Malpractice -- Issues and Avoidance

Michael B. Lang (Chapman), Tax Malpractice: Issues and Avoidance, 54 Bloomberg BNA Tax Mgmt. Mem. ___ (2013):

Despite considerable regulation of tax practitioners by both statutory rules and professional ethical standards, when a tax advisor mishandles a client’s tax work, whether because of incompetence, a conflict of interest or for some other reason, the client seeking redress must generally resort to malpractice or related actions against the errant tax advisor. Such actions draw upon a peculiar mixture of tax law, professional ethical standards promulgated by state bars and the IRS Office of Professional Responsibility and torts law, three areas of law usually frequented by different groups of experts. This article attempts to further understanding of this peculiar mixture by addressing core issues of malpractice and related causes of action in a tax practice context, covering issues such as the duties to the client, possible causes of action, damages, privity, statutes of limitations and repose, and the relevance of ethical rules. In addition, it discusses key procedures that tax practitioners can use to reduce their malpractice risk and explores some classic tax practice situations fraught with malpractice potential. While the discussion is largely based upon the standards applicable to lawyers, much of it applies equally to other tax practitioners, particularly CPAs. However, unlike other tax practitioners, lawyers generally cannot limit their malpractice liability prospectively or, if they can, can only do so with some difficulty. In addition, in some contexts lawyers may be subject to special rules, such as with regard to the applicable statutes of limitations. The article represents one view of important legal issues and concerns that tax professionals should bear in mind, along with other factors, in trying to prevent, avoid or mitigate the risk presented by malpractice-type litigation.  

AEI: Taxing Individuals Rather Than Families

AEI:  The Tax Treatment of the Family, by Aspen Gorry & Sita Nataraj Slavov:

In two recent cases, the U.S. Supreme Court considered constitutional challenges to the federal Defense of Marriage Act—which denies federal recognition of same-sex marriage—and to California’s Proposition 8, a constitutional amendment banning same-sex marriage. Regardless of the outcomes of these two cases, the controversy over same-sex marriage highlights an important tax policy question: should the US tax code treat people as families, as it currently does, or as individuals? This paper considers the costs and benefits of switching to a tax system based on individual, rather than family, income. 

Yin: The Role of Nonpartisan Staff in the Legislative Process

George K. Yin (Virginia), The Role of Nonpartisan Staff in the Legislative Process:

This short paper explains why the value of nonpartisan staff in the legislative process may stem primarily from the staff’s responsibilities to serve a broad group of legislators with heterogeneous interests, rather than on the “nonpartisan” nature of the staff. An earlier version of this paper was the keynote address to the participants of an April, 2013 Tax Symposium sponsored by the Northwestern University Law School in celebration of the centennial of the modern income tax.

The IRS Scandal, Day 8

• White House Press Release:  President Obama Appoints Daniel Werfel as Acting Commissioner of Internal Revenue
• White House Profile:  Daniel Werfel
• IRS:  Questions and Answers on 501(c) Organizations
• IRS:  Approved Tax-Exempt Applications for Advocacy Organizations through May 9, 2013
• American Enterprise Institute:  What Congress Should Do About IRS Tea Party Bias
• Bloomberg:  IRS Probe Sheds Light on Nonprofit Election-Year Surge
• Bloomberg:  Ousted Acting IRS Head Faces Lawmaker Grilling in Scandal
• CNN:  IRS Scandal May Unleash a Flood of Conservative Donors
• Daily Caller:  Did the IRS Give Mitt Romney’s Tax Returns to Harry Reid?
• Daily Caller:  Schumer, Franken urged IRS to target tea party in 2012
• Dorf on Law:  The IRS Mess Is Already Badly Misunderstood -- And the Distorted Narrative Will Only Get Worse, by Neil H. Buchanan (George Washington)
• The Fiscal Times:  Now We Find Out That the IRS Is Incompetent
• Fox News:  Conservative Hispanic Groups Targeted In IRS Scandal
• Fox News:  IRS Official Who Oversaw Unit Targeting Tea Party Now Heads ObamaCare Office
• National Review:  An Agency After Obama’s Own Heart: Sure, Obama Probably Didn’t Order the IRS to Discriminate. But He Set the Tone 
• National Review:  The IRS and Big Government
• New York Times:  GOP, Energized, Weighs How Far to Take Inquiries
• New York Times:  Obama to Name Budget Official as Acting IRS Chief
• New York Times Opinionator:  Behind the IRS Mess: A Campaign Finance Scandal, by Steven Ratner
• Wall Street Journal editorial:  Nina Olson for IRS Commissioner:  To Atone for Political Abuse, Give the Taxpayer Advocate a Promotion
• Wall Stret Journal op-ed:  This Is No Ordinary Scandal: Political Abuse of the IRS Threatens the Basic Integrity of Our Government, by Peggy Noonan
• Wall Street Journal:  The IRS Scandal Started at the Top: The Bureaucrats at the IRS Did Exactly What the President Said Was the Right and Honorable Thing to Do
• Wall Street Journal:  Republicans Step Up IRS Scrutiny
• Washington Examiner:  The IRS is Deeply Political — And Very Democratic
• Washington Post:  Five Steps to Remedy Wrongs Done by the IRS
• Washington Post:  Obama Appoints Daniel Werfel as Acting Head of IRS

NBC Sports:  Evan Mathis Shows His Disdain for the IRS:

Prior TaxProf Blog coverage:

• IRS Admits to Targeting Conservative Groups in 2012 Election (May 10, 2013)
• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling (May 11, 2013)
• Schmalbeck on the IRS 'Targeting' of Conservative Groups (May 12, 2013)
• The Deepening IRS Scandal (May 13, 2013)
• The IRS Scandal, Day 5 (May 14, 2013)
• Jon Stewart and Vic Fleischer on the IRS Scandal (May 14, 2013)
• Inspector General: Ineffective IRS Management Allowed Agents to Target Conservative Groups (May 14, 2013)
• The IRS Scandal, Day 6 (May 15, 2013)
• Ellen Aprill, The TIGTA Report on the IRS Scandal: Questions About the IRS and About the Report (May 15, 2013)
• Phillip Hackney, The TIGTA Report on the IRS Scandal: Be on the Lookout for False Partisan Witchunts (May 15, 2013)
• The IRS Scandal, Day 7 (May 16, 2013)

NY Times Debate: Should 501(c)(4)’s Be Eliminated?

New York Times Room for Debate:  Should 501(c)(4)’s Be Eliminated?:

The IRS has been harshly criticized for singling out conservative organizations when it investigated which groups were legitimately applying for 501(c)(4) status, which makes them tax exempt, keeps donors confidential and allows some political activity. But should the 501(c)(4) status even exist? Should nonprofits be allowed any political activity?  

• Ellen Aprill (Professor, Loyola-L.A.), Create a New Category:  "By establishing a new exemption category of organizations that primarily lobby, we could help cure the schizophrenia that infects Section 501(c)(4)."
• John Colombo (Professor, Illinois), Do Away With Them:  "If you want to be a charity, be a charity; if you want to be engaged in the political process through lobbying or otherwise, pay taxes or register as a 527."
• Rosemary Fei (Attorney, Adler & Colvin, San Francisco), A Unique and Useful Purpose:  "The IRS needs to fix Section 501(c)(4) to address its use by abusive organizations, but we shouldn’t eliminate it."
• Doug Mancini (Attorney, Hunton & Williams, Los Angeles), Don't Eliminate Them:  "501(c)(4) exemption serves a useful purpose and actual or perceived abuses are capable of being addressed with minor legislative change and better enforcement."
• Lloyd Hitoshi Mayer (Professor, Notre Dame), Require Disclosure of Their Donors:  "Congress needs to revise the disclosure rules to target the political activity and apply those rules to all groups, regardless of tax classification."

House Holds Hearing Today on IRS Targeting of Conservative Groups

The House Ways & Means Committee holds a hearing today on IRS Targeting of Conservative Groups:

The hearing will focus on the IRS’s practice of discriminating against applicants for tax-exempt status based on the political leanings of the applicants.

• Steve Miller (Former Acting Commissioner, IRS)
• J. Russell George (Treasury Inspector General for Tax Administration) 

Fleischer: The IRS Scandal as Bleak House

New York Times DealBook:  A Dickensian Delay at the IRS, by Victor Fleischer (Colorado; moving to San Diego):

A plot device in Charles Dickens’s Bleak House follows the interminable case of Jarndyce v. Jarndyce through the English Court of Chancery. The litigation winds on for years until, finally, the costs of litigating the case have consumed the entire estate, leaving nothing for the heirs.

A report released on Tuesday by the Treasury Inspector General for Tax Administration on a scandal at the IRS surrounding the processing of tax-exempt applications from conservative groups, while decidedly less enthralling than Dickens, shows that the agency has inherited the mantle of indefinite detention from those English courts.

Government investigative reports are most damning in the detail, not the sound bite. Some 80 percent of the sample of applications studied in the report were not resolved within a year. Of the 296 cases reviewed, 160 were still open as of December 2012, with delays running 206 to 1,138 days. Some of those open cases are nearly as old as my 4-year-old daughter, Penelope, who has learned to speak, read, write, count, walk, run, skip, jump and swim in that time. When it comes to dawdling, however, even she cannot match the IRS.

The causes of delay are soul-crushingly mundane. The IRS unit in Cincinnati responsible for making determinations of tax-exempt status had trouble getting guidance from the unit in Washington that is supposed to give technical advice on how to apply the law. ...

Long delays are evidence of ineptitude and a reluctance to tackle difficult issues, not evidence of a political conspiracy. It may be the case that a couple of IRS employees went rogue, as the acting IRS commissioner, Steven T. Miller, suggested on Wednesday before he was ousted from the job.

Aggressive investigation of those individuals may be appropriate. But firing Mr. Miller, as President Obama did on Wednesday, is mere tokenism. The witch hunt obscures the institutional failures that Congress could actually correct.

The publication of Bleak House helped spur legal changes in England. Perhaps this IRS scandal will do the same.

British Lawmakers Charge Google With Tax Dishonesty

• BBC News
• Bloomberg
• The Guardian
• Wall Street Journal
• Washington Post

Virginia Tax Review Publishes New Issue

The Virginia Tax Review has published Vol. 32, No. 3 (Winter 2013):

• Heather M. Field (UC-Hastings), Binding Choices: Tax Elections & Federal/ State Conformity, 32 Va. Tax Rev. 269 (2012)
• George Mundstock (Miami), The Tax Import of the FASB/IASB Proposal on Lease Accounting, 32 Va. Tax Rev. 327 (2012)
• Eric Chason (William & Mary), Extending the Taxation-of-Risk Model to Timing Options and Marked-to-Market Taxes, 32 Va. Tax Rev. 367 (2012)
• Ilan Benshalom (Hebrew University, Faculty of Law), Rethinking the Source of the Arm’s Length Transfer Pricing Problem, 32 Va. Tax Rev. 387 (2012)

The Most Racially Diverse Law School Faculties

The Most Racially Diverse Law School Faculties, Lawyers of Color Law School Diversity Issue:

• Charlotte
• Florida A&M
• Florida International
• Hawaii
• Howard
• Inter American
• John Marshall (Atlanta)
• Liberty
• New Mexico
• North Carolina Central
• Puerto Rico
• Southern
• Texas Southern

For more, see:

• Lawyers of Color, Why Faculty Diversity in Law Schools Is Important
• Lawyers of Color, Minority Law Faculty Directory of 200 Law Schools
• JD Journal, Survey Shows US News’ Leading Law Schools Lack Diversity
• National Law Journal, 'U.S. News' Top Law Schools Fall Short on Diversity

Gillers: The Two-Year Law Degree: Undesirable but Unavoidable

Stephen Gillers (NYU), The Two-Year Law Degree: Undesirable but Perhaps Unavoidable, 2013 N.Y.U. J. Legis. & Pub. Pol'y Quorum 4:

Professor Stephen Gillers responds to Professor Estreicher’s proposal for a two-year law degree that will qualify a graduate to take the bar examination [The Roosevelt-Cardozo Way: The Case for Bar Eligibility After Two Years of Law School, 15 N.Y.U. J. Legis. & Pub. Pol'y 599 (2012)]. Professor Gillers states that while two years of law school may be sufficient to practice many types of legal work, it will put two-year graduates at a professional disadvantage. The lower knowledge base of two-year graduates will make them less attractive candidates in an already tight job mar-ket. Furthermore, even if New York allows a two-year degree to qualify for the bar exam, it will limit two-year graduates to practicing in New York only, as reciprocity from other states is not expected.

Avi-Yonah: Virtual PE: International Taxation and the Fairness Act

Reuven S. Avi-Yonah (Michigan), Virtual PE: International Taxation and the Fairness Act:

Congress may be about to enact the Marketplace Fairness Act of 2013, which overrules the Supreme Court's 1992 decision in Quill that banned states from requiring remote vendors to collect use tax on their behalf unless the vendor had a physical presence in the state. This paper explores the international tax implications of such a move given that the Permanent Establishment threshold is similar to the physical presence requirement that the Fairness Act seeks to abolish. It argues that the small business exception in the Fairness Act is a good model for international tax to follow in re-evaluating the PE threshold.

Lucas: The Paternalistic Use of Cigarette Taxes

Gary Lucas, Jr. (Texas-Wesleyan), Saving Smokers from Themselves: The Paternalistic Use of Cigarette Taxes, 80 U. Cin. L. Rev. 693 (2012):

Governments at all levels have significantly increased cigarette taxes in recent years. Under the framework traditionally used by tax policy analysts, these tax increases are justified (1) if they are necessary to force smokers to internalize the harm that smoking causes others or (2) if they are a fair and efficient way to fund the government. But economists have generally concluded that on net, smokers do not impose large costs on third parties. In addition, heavily taxing cigarettes places a significant financial burden on low-income smokers and their families, which raises fairness concerns. As a result, scholars who support cigarette tax increases have begun to rely less on conventional tax policy arguments and to instead invoke novel arguments based on paternalism.

Continue reading "Lucas: The Paternalistic Use of Cigarette Taxes"

Gabilondo Named One of 50 Most Influential Minority Law Professors

José Gabilondo (Florida International) is the only Tax Prof named to Lawyers of Color's 2013 50 Under 50 List ("The Most Influential Minority Law Professors 50 Years of Age or Younger") in its Law School Diversity Issue:

José Gabilondo joined the College of Law after working in financial market regulation at the U.S. Department of the Treasury, the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the World Bank. He served as Associate Dean for Academic Affairs from 2009-2011. Professor Gabilondo teaches tax and corporate finance. He is co-author of Corporate Finance Debt, Equity, and Derivatives Markets and their Intermediaries in the American Casebook Series. He is a nationally recognized commentator in the Spanish-language media on financial and economic matters.

For the complete list of the 50 Under 50, see here.

The IRS Scandal, Day 7

• The Atlantic:  'Angry' Obama: IRS Chief Is Out, and New Safeguards Are Coming
• Bloomberg:  Congress Focuses on IRS Delay in Disclosing Tea Party Scrutiny
• Bloomberg:  IRS Says Concerns About Some Tea Party Groups Prompted Label
• Boston Globe editorial:  In Targeting Conservative Groups, IRS Violated Core Principles
• Cato Institute:  The IRS Scandal: Hiding In Plain Sight, by Walter Olson
• Columbia Journalism Review:  The Other IRS Scandal: Required Context for a Controversy, by David Cay Johnston
• CNN:  Source: Two 'Rogue' Workers Principally Behind IRS Targeting of Conservatives
• Daily Caller:  Scandal-Plagued IRS Official Will Give Speech, Receive Award at College Commencement
• Forbes:  Suit Alleges IRS Improperly Seized 60 Million Personal Medical Records
• Human Events:  Left-Wing Groups Sailed Past the Politicized IRS
• L.A. Times:  The Real Scandal: IRS Gives Tax Exemptions to Political Partisans
• Legal Ethics Forum:  IRS Scandal: Why Reveal at the ABA Conference? (The Answer Isn't Flattering to the IRS), by John Steele
• National Law Journal:  Scandal Could Change How IRS Regulates Political Groups
• National Review:  Defending the Taxman: Debunking the IRS Excuses and Evasions
• National Review:  Director of IRS Tax-Exempt Determinations Office is Obama Donor
• National Review:  IRS Employees Disproportionately Donate to Obama: Statistics Reveal an Imbalance in a Nominally Nonpartisan Agency 
• National Review:  IRS Source: Cincinnati Told to Lock Down Data
• New York Times:  Acting Chief of IRS Forced Out Over Tea Party Targeting
• New York Times editorial:  Take Politics Away From the IRS
• New York Times op-ed:  The Real IRS Scandal
• New York Times Opinionator:  The Taxman Cometh, by David Brooks & Gail Collins
• Reuters:  US Senator Probing Why IRS Revealed Mistakes at Lawyer Meeting
• The Right Sphere:  Speaking of Shady 501(c)(4) Non-Profits…
• Slate:  It’s About Disclosure, Stupid: The Larger Failing Behind the Terrible IRS Treatment of Tea Party Groups, by Richard L. Hasen (UC-Irvine)
• Wall Street Journal editorial:  Your Next IRS Political Audit:  The Tax Agency Is Getting Vast New Power in Health Care
• Wall Street Journal editorial:  Democrats and the IRS: Chuck Schumer Wanted the Agency to Probe Tax-Exempt Political Groups
• Wall Street Journal op-ed:  The Senate Roots of the IRS Scandal: High-ranking Democrats in 2010 Began Egging the Agency to Investigate Conservative Nonprofits
• Wall Street Journal:  A Brief History of IRS Political Targeting: One Survey Found That 75% of IRS Respondents Felt Entitled to Deceive or Lie to Congress
• Wall Street Journal:  The 'Independent' Revenue Service: President Obama Has a Strange View of IRS Political Accountability
• Wall Street Journal:  Tax Scandal Fells IRS Chief 
• Washington Post:  Acting Director of IRS Resigns Amid Furor Over Targeting of Conservative Groups
• Washington Examiner:  IRS Exec Got $42K in Bonuses in Three Years

IRS, Exempt Organization Field Examination Flowchart:

Lederman & Sichelman: Enforcement as Substance in Tax Compliance

Leandra Lederman (Indiana-Bloomington) & Ted Sichelman (San Diego), Enforcement as Substance in Tax Compliance, 71 Wash. & Lee L. Rev. ___ (2013):

It is well known that the government’s complete failure to enforce a law can nullify that law. But what are the effects of partial enforcement? This Article shows that imperfect enforcement can alter the de facto content of the written law in predictable and beneficial ways. Specifically, in the tax compliance context, even if perfect enforcement were costless, it would not always be socially optimal. When improving the substantive law is infeasible, the enforcement agency can effect beneficial changes in the law by adopting a probabilistic enforcement scheme that varies according to the category of taxpayer and type of transaction. Our model shows that properly “measuring” enforcement in this manner can increase overall social welfare without reducing tax revenues. Unlike case-by-case discretionary enforcement, which often results in costly uncertainty, measured enforcement operates via systemic, published policies that legal actors can respond to predictably. Accordingly, measured enforcement can offer substantial benefits not readily obtained through traditional lawmaking or enforcement schemes.

Senate Releases Tax Reform Option Paper on Economic and Community Development

The Senate Finance Committee yesterday released its Sixth Tax Reform Option Paper on Economic and Community Development:

This document is the sixth in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs.

The paper lists the following broad goals in this policy area:

• Simplify the law in order to reduce the cost to businesses and individuals of complying with the tax code;
• Carefully consider whether and how to address any positive or negative externalities;
• If policy makers choose to include incentives in a reformed tax code, make such tax expenditures more equitable and efficient; and
• Carefully consider how to treat different parts of the country and industries equitably.

On housing, the paper includes the following options:

• Gradually repeal the mortgage interest deduction;
• Limit the mortgage interest deduction;
• Convert the mortgage interest deduction to an above-the-line deduction;
• Convert the mortgage interest deduction to a credit;
• Phase out exclusion for capital gains on sale of principal residence;
• Make permanent the deduction for mortgage insurance premium payments;
• Extend exclusion from income for cancellation of certain home mortgage debt;
• Repeal the Low-Income Housing Tax Credit (LIHTC);
• Replace the LIHTC with an equivalent reduction in tax on rental income;
• Reform or expand the LIHTC; and
• Create a non-refundable tax credit for low-income renters.

The paper lists other policy options for state and local financing, tribal financing, community development, and state and local tax uniformity.  

The Ohio Legacy Trust Act

Kevin R McKinnis (J.D. 2014, Cleveland State), Note, The Ohio Legacy Trust Act: The Good, the Bad and the Poor Man’s Prenuptial: An Analysis of What Asset Protection Trusts Will Mean for Ohio, 60 Cleve. St. L. Rve. ___ (2013):

This law review note, forthcoming in The Cleveland State Law Review, provides an in-depth analysis of the Ohio Legacy Trust Act and explores the potential effects the Act will have on Ohio. This note also explores the requirements to establish a Legacy Trust and the potential federal income and estate tax consequences. In the latter portion of the note, the possible ethical implications for Ohio attorneys is examined, as well as the arguments creditors will make when attempting to void a disposition to a Legacy Trust.

Kleinbard: Starbucks and Stateless Income Tax Planning

Edward D. Kleinbard (USC), Through a Latte, Darkly: Starbucks' Window into Stateless Income Tax Planning:

This paper uses Starbucks Corporation, the premier roaster, marketer and retailer of specialty coffee in the world, as an example of stateless income tax planning in action. “Stateless income” comprises income derived for tax purposes by a multinational group from business activities in a country other than the domicile of the group’s ultimate parent company, but which is subject to tax only in a jurisdiction that is neither the source of the factors of production through which the income was derived, nor the domicile of the group’s parent company.

The paper reviews both Starbucks’ recent U.K. tax controversy (including a parliamentary inquiry), which revolved around the intersection of its consistent unprofitability in the United Kingdom with large deductible intragroup payments to Dutch, Swiss and U.S. affiliates, and its more recent submission to the U.S. House Ways and Means Committee. The paper draws from this review two lessons.

First, if Starbucks can organize itself as a successful stateless income generator, any multinational firm can. Starbucks follows a classic bricks and mortar retail business model, with direct customer interactions in thousands of “high street” locations in high-tax countries around the world. Moreover, Starbucks is not a firm driven by hugely valuable identifiable intangibles that are separate from its business model, which it employs whenever it deals with those retail customers. Nonetheless, it appears that Starbucks enjoys a much lower effective tax rate on its non-U.S. income than would be predicted by looking at a weighted average of the tax rates in the countries in which it does business.

Second, The Starbucks story – in particular, its U.K. experience – demonstrates the fundamental opacity of international tax planning, in which neither investors in a public firm nor the tax authorities in any particular jurisdiction have a clear picture of what the firm is up to. It is not appropriate to expect source country tax authorities to engage in elaborate games of Twenty Tax Questions, in turn requiring detailed knowledge of the tax laws and financial accounting rules of many other jurisdictions, in order simply to evaluate the probative value of a taxpayer’s claim that its intragroup dealings necessarily are at arm’s-length by virtue of alleged symmetries in tax treatment for expense and income across the group’s affiliates. U.S.-based multinational firms owe a similar duty of candor and transparency when dealing with the Congress of the United States.

The remedy begins with transparency towards tax authorities and policymakers, through which those institutions have a clear and complete picture of the global tax planning structures of multinational firms, and the implications of those structures for generating stateless income. National governments should recognize their common interest in this regard and promptly require their tax and securities agencies to promulgate rules providing a uniform world-wide disclosure matrix for actual tax burdens by jurisdiction. As a first step the United States should enforce the current rule requiring U.S. firms to quantify the U.S. tax cost of repatriating their offshore “permanently reinvested earnings."

American Lawyer: There Are Two Law School Grads For Every Available Law Job

The American Lawyer:  Most States Saw Lawyer Surplus Grow From 2009 to 2011, by Matt Leichter:

[I]n 2011 there were more than two ABA law school graduates and three new lawyers for every job opening in the United States.

STATE/BEA REGION	No. ABA Law School Graduates		No. Bar Admits		Ratio ABA Grads to Annual Lawyer Jobs		Ratio Bar Admits to Annual Lawyer Jobs
	2009	2011	2009	2011	2009	2011	2009	2011
Alabama	405	416	522	548	2.03	1.73	2.61	2.28
Alaska	0	0	93	106	0.00	0.00	3.10	5.30
Arizona	378	490	418	689	1.35	1.09	1.49	1.53
Arkansas	249	269	278	307	2.26	2.07	2.53	2.36
California	4,688	4,964	6,766	6,627	1.99	1.99	2.87	2.66
Colorado	518	462	1,055	1,256	1.57	1.36	3.20	3.69
Connecticut	531	526	841	559	2.79	2.77	4.43	2.94
Delaware	237	252	154	122	3.95	4.20	2.57	2.03
D.C.	2,129	2,116	4,082	3,164	2.19	1.48	4.21	2.21
Florida	2,787	2,998	2,990	3,646	2.03	1.53	2.18	1.86
Georgia	896	896	1,112	1,288	1.18	1.30	1.46	1.87
Hawaii	88	101	176	208	1.47	1.68	2.93	3.47
Idaho	93	104	249	210	1.03	1.49	2.77	3.00
Illinois	2,166	2,183	3,085	2,928	1.92	2.25	2.73	3.02
Indiana	828	818	666	643	2.44	3.03	1.96	2.38
Iowa	341	342	351	431	2.44	2.63	2.51	3.32
Kansas	297	309	470	395	1.75	2.21	2.76	2.82
Kentucky	385	455	533	645	2.14	2.39	2.96	3.39
Louisiana	811	797	723	744	3.24	2.95	2.89	2.76
Maine	93	90	166	163	1.86	1.29	3.32	2.33
Maryland	548	594	1,373	1,653	2.03	1.49	5.09	4.13
Massachusetts	2,316	2,288	2,328	2,416	5.39	3.27	5.41	3.45
Michigan	2,016	2,072	1,099	1,099	4.29	6.48	2.34	3.43
Minnesota	962	887	1,034	923	2.60	2.77	2.79	2.88
Mississippi	347	316	281	284	2.31	10.53	1.87	9.47
Missouri	898	890	1,062	965	4.08	2.02	4.83	2.19
Montana	77	84	153	192	1.28	1.20	2.55	2.74
Nebraska	280	283	112	245	2.80	4.04	1.12	3.50
Nevada	140	128	392	542	0.93	0.98	2.61	4.17
NH	144	147	300	296	2.88	2.45	6.00	4.93
New Jersey	791	783	2,691	2,844	1.46	1.04	4.98	3.79
New Mexico	112	106	278	287	1.60	1.51	3.97	4.10
New York	4,776	4,703	10,194	9,855	2.81	2.92	6.00	6.12
North Carolina	1,055	1,123	1,140	1,101	2.34	2.44	2.53	2.39
North Dakota	83	81	115	195	2.77	2.03	3.83	4.88
Ohio	1,495	1,411	1,117	1,324	3.25	2.57	2.43	2.41
Oklahoma	494	462	450	465	2.35	1.71	2.14	1.72
Oregon	531	537	682	795	3.32	2.98	4.26	4.42
Pennsylvania	1,715	1,739	1,666	2,404	2.68	2.35	2.60	3.25
Puerto Rico	554	678	506	557	5.54	6.78	5.06	5.57
Rhode Island	184	158	209	185	2.30	2.63	2.61	3.08
South Carolina	405	418	475	508	2.13	2.09	2.50	2.54
South Dakota	73	55	115	96	N/A	1.38	N/A	2.40
Tennessee	445	472	903	821	2.12	N/A	4.30	N/A
Texas	2,337	2,343	3,395	3,476	1.56	1.44	2.26	2.13
Utah	281	285	458	606	1.00	1.36	1.64	2.89
Vermont	191	175	74	109	3.18	3.50	1.23	2.18
Virginia	1,429	1,350	1,430	1,452	1.96	1.78	1.96	1.91
Washington	694	657	1,090	1,148	1.58	1.43	2.48	2.50
West Virginia	149	125	254	307	2.48	1.56	4.23	3.84
Wisconsin	487	484	855	920	2.56	1.94	4.50	3.68
Wyoming	71	73	151	112	2.37	0.91	5.03	1.40
U.S.A. (States)	44,000	44,495	61,112	62,861	2.26	2.09	3.14	2.95
U.S.A. (BLS)					1.83	2.10	2.54	2.97
New England	3,459	3,384	3,918	3,728	4.02	2.99	4.56	3.30
Mideast	10,196	10,187	20,160	20,042	2.44	2.04	4.82	4.02
Great Lakes	6,992	6,968	6,822	6,914	2.70	2.95	2.63	2.93
Plains	2,934	2,847	3,259	3,250	2.85	2.41	3.16	2.75
Southeast	9,363	9,635	10,641	11,651	2.01	1.92	2.28	2.33
Southwest	3,321	3,401	4,541	4,917	1.61	1.41	2.20	2.03
Rocky Mtn	1,040	1,008	2,066	2,376	1.32	1.31	2.62	3.09
Far West	6,141	6,387	9,199	9,426	1.92	1.91	2.87	2.82

Top Tax Court Judge to be Suspended 9 Months Without Pay for Submitting Late Opinions

Following up on my previous post, Minnesota Tax Court Chief Judge Accused of Missing Deadlines, Evading Work:  ABA Journal, Top Tax Court Judge Should be Suspended 9 Months Without Pay, Review Panel Says:

A review panel has recommended that the chief judge of the Minnesota Tax Court be censured and suspended without pay for nine months, because he routinely exceeded the three-month deadline for submitting his opinions and falsified dates to try to obscure his noncompliance.

Nonetheless, Judge George Perez was known for not filing timely tax opinions, suggesting "a lack of oversight, both organizationally and technologically.” the Board on Judicial Standards wrote. Its recommendation, which includes monthly reports by Perez on the status of his cases and a requirement that he seek permission for extensions from the new chief judge, once he is back on the bench, now goes to the state supreme court for a final decision, the Star Tribune reports.

AEI: Tax Policy and the Nobel Prize

American Enterprise Institute Podcast:   Tax Policy and the Nobel Prize:

What will you do with your Nobel Prize Money? On the latest episode of Banter, AEI economist Aparna Mathur discusses the tax policy surrounding academic, scientific, and philanthropic prize winnings. America is the only country that taxes these earnings and as a result, many give their winnings to charity. Should these winners, who’ve contributed so much to society already, be allowed to keep the fruits of their labor or should they be encouraged to contribute to further social good? Plus, Stu and Andrew play a round of “guess the feminist critique.”

Two More Schools Join Rankings Hall of Shame

Robert Morse (Director of Data Research for U.S. News & World Report), Updates to 2 Schools' 2013 Best Colleges Ranks:

Two schools – University of Mary Hardin-Baylor and York College of Pennsylvania – recently advised U.S. News that they submitted inflated data that were used in the 2013 Best Colleges rankings, resulting in their numerical ranks being higher than they otherwise might have been. In both cases, the same incorrect data were also reported to many other parties including the U.S. Department of Education.

University of Mary Hardin-Baylor, a Texas school in the Regional Universities (West) rankings category, advised U.S. News that it reported an acceptance rate (which accounts for 1.5% of the overall ranking) of 27.4%, rather than the actual 89.1% rate.

York College, a Pennsylvania school in the Regional Universities (North) rankings category, advised U.S. News that it reported average SAT scores (which account for 7.5% of the overall ranking) of 545 (math) and 532 (critical reading), rather than the actual 527 (math) and 516 (critical reading) SAT scores. York College admitted that it has been misreporting SAT scores for more than a decade.

Other members of the Rankings Hall of Shame:  Bucknell, Claremont McKenna, Emory, George Washington, Illinois, Tulane, and Villanova.

Aprill: The TIGTA Report on the IRS Scandal: Questions About the IRS and About the Report

Ellen Aprill (Loyola-L.A.), The TIGTA Report on the IRS Scandal: Questions about the IRS and About the Report:

We now have the report from the Treasury Inspector General for Tax Administration, Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review (the Report). The Report details certain problems that have already been made public, such as the Exempt Organization’s Determination Unit relying on names such as “Tea Party” or “Patriot” to identify potential cases of excessive campaign intervention or asking inappropriate questions of applicants, such as names of donors and the intention of officers, directors, etc. to run for political office. There is also new and disquieting information. We discover, for example, that it took the Director, Rulings and Agreements, three months to learn that the reviewers of these applications had in January 2010 changed the criteria being applied. Moreover, processing of cases stopped in October 2010, but the Determination Unit Program thought the cases were still being processed, and draft written guidance was not received from the Technical Unit until November 2011, 13 months after the Determinations Unit stopped processing cases. At the same time, the Report documents that the Director, Exempt Organizations acted promptly when, however belatedly, problems did come to her attention.

Nonetheless, the quality of some aspects of the Report troubles me. Figure l on page 2 of the Report purports to display “Characteristics of Certain Common Types of Tax-Exempt Organizations.” According to the Figure, section 501(c)(3) organization do not have to publicly disclose the identity of their donors. That is simply wrong.

Continue reading "Aprill: The TIGTA Report on the IRS Scandal: Questions About the IRS and About the Report"

Hackney: The TIGTA Report on the IRS Scandal: Be on the Lookout for False Partisan Witchunts

Phillip Hackney (LSU), The TIGTA Report on the IRS Scandal: Be on the Lookout for False Partisan Witchunts:

The TIGTA report on the IRS Teaparty scandal pretty much confirmed my expectations which is that the claim that the IRS "targeted" conservative groups to the exclusion of others is false.  This is the most explosive charge that everyone had been expecting.  Additionally, the IRS did not single out conservative groups alone to send ridiculously long and inappropriate questions -- it did it to everyone caught in the net of political advocacy. Interestingly, the report identifies that 96 of 298 cases were related to conservative tea party, patriot or 9/12 groups.  I don't know what that leaves for the allegiances of the other 68%, but it would have been nice to know. If the other greater than 2/3s amount had liberal or democratic allegiances, we have a much different scandal on our hands -- Obama is targeting liberals, why? -- but TIGTA does not provide this information.

The report is well-written and gives some good recommendations, but it acts like a knee surgeon examining an elderly sick patient.  The doctor tells her that her problem is a bad knee and if he gives her a new knee, she will be like new again.   It's all good and well to tell the IRS to beef up its work on political advocacy, but that ignores the real problem, which is that it gets in over 60,000 paper applications a year that it somehow has to both quickly and with accuracy review with too small of a staff. 

Continue reading "Hackney: The TIGTA Report on the IRS Scandal: Be on the Lookout for False Partisan Witchunts"

The IRS Scandal, Day 6

• The Atlantic, The IRS' Role in Campaign Finance Is an Awkward, Unhappy Accident
• Bloomberg, Carney Says White House Not Involved in IRS Targeting Groups
• Bloomberg, IRS Focus on Tea Parties Stirs Dissent on Health Care Law
• Bloomberg, IRS Sent Same Letter to Democrats That Fed Tea Party Row
• Breitbart:  Progressive Group: IRS Gave Us Conservative Groups' Confidential Docs
• CNN, The Real Risk of the IRS Scandal
• Daily Caller:  IRS Official Lerner Speedily Approved Exemption for Obama Brother’s ‘Charity’
• The Guardian, The IRS Should Do More, Not Less, Scrutinizing of Political Groups
• Human Events, More IRS Abuses of Power Against Conservative Groups
• National Law Journal, Scandal Could Leave IRS 'Gun Shy' With Political Groups
• New York Times editorial, The IRS Audits Are Condemned 
• New York Times, Uneven IRS Scrutiny Seen in Political Spending by Big Tax-Exempt Groups
• Politico:  Franklin Graham: IRS Targeted Us, Too
• Time, New IRS Scandal Echoes a Long History of Political Harassment
• Townhall, Partisan Obama Culture Spawned a More Abusive IRS
• USA Today:  IRS Approved Liberal Groups While Tea Party in Limbo
• Wall Street Journal editorial, The IRS Wants You: The Scandal Over Politicized Tax Enforcement Is Growing
• Wall Street Journal, How Obama Learned to Love the IRS
• Wall Street Journal, The IRS's Nonprofit Helper: A Tax-Exempt Charity Disseminated Confidential Tax Information 
• Washington Examiner:  IRS Scandal Raises Fears About Enforcing Obamacare
• Washington Examiner:  Jay Carney Walks Back Denial of White House Involvement in IRS Scandal
• Washington Post:  IRS Has Been Too Lax on Tax-Exempt Status
• Weekly Standard:  McConnell: 'We’ve Only Started to Scratch the Surface of This Scandal'

Prior TaxProf Blog coverage:

• IRS Admits to Targeting Conservative Groups in 2012 Election (May 10, 2013)
• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling (May 11, 2013)
• Schmalbeck on the IRS 'Targeting' of Conservative Groups (May 12, 2013)
• The Deepening IRS Scandal (May 13, 2013)
• The IRS Scandal, Day 5 (May 14, 2013)
• Jon Stewart and Vic Fleischer on the IRS Scandal (May 14, 2013)
• Inspector General: Ineffective IRS Management Allowed Agents to Target Conservative Groups (May 14, 2013)

House Holds Hearing Today on Small Business and Pass-Through Entity Tax Reform

The Subcommittee on Select Revenue Measures of the House Ways & Means Committee holds a hearing today on Ways and Means Small Business and Pass-Through Entity Tax Reform Discussion Draft:

The hearing will focus on the Ways and Means small business discussion draft released on March 12, 2013. For purposes of this hearing, the Subcommittee is interested in comments and analysis relating to the basic architecture of the draft proposals including, in particular, the implications of the changes to the cash accounting rules, the questions that must be answered in designing a workable unified pass-through regime, and the real-world ramifications of the incremental proposals to modify the rules governing S corporations and partnerships.

• Roger Harris (President, Padgett Business Services, Athens, GA)
• Willard Taylor (Former Partner, Sullivan & Cromwell, New York)
• Blake Rubin (Partner, McDermott Will & Emery, Washington, D.C.)
• Thomas Nichols (Partner, Meissner Tierney Fisher & Nichols, Milwaukee)

Inspector General: Ineffective IRS Management Allowed Agents to Target Conservative Groups

The Treasury Inspector General for Tax Administration today released Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review (2013-10-053):

Early in Calendar Year 2010, the IRS began using inappropriate criteria to identify organizations applying for tax-exempt status to review for indications of significant political campaign intervention. Although the IRS has taken some action, it will need to do more so that the public has reasonable assurance that applications are processed without unreasonable delay in a fair and impartial manner in the future.

• Bloomberg:  Ineffective IRS Management Led to Targeting, Report Says
• Bloomberg:  Obama Calls IRS Actions Outlined in Internal Report Intolerable
• Fox News:  Watchdog Report Describes Massive Delays as IRS Slow-Walked Tea Party Groups
• Huffington Post:  Inspector General: IRS' Ineffective Management Allowed Tea Party Targeting
• New York Times:  Management Flaws at IRS Cited in Tea Party Scrutiny
• Politico:  5 Takeaways From IRS Report
• Wall Street Journal:  Inspector General’s IRS Report
• Washington Post:  Inspector General Says Ineffective Management at IRS Allowed Agents to Target Tea Party Groups
• Washington Times:  IRS Audit Found Political Bias Against Conservatives; Groups Gave Up After Application Delay

(Hat Tip: Ellen Aprill.)

Jon Stewart and Vic Fleischer on the IRS Scandal

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New York Times DealBook:  Congress’s Role in the IRS Focus on Conservative Groups, by Victor Fleischer (Colorado; moving to San Diego):

Outrage continues to escalate over the revelation that IRS employees focused on conservative groups applying for tax-exempt status. The indignation is understandable: political targeting is an abuse of power, and the idea of using the IRS to go after one’s enemies is a classic dirty trick. Unfortunately, the incident provides a new fuel source for the paranoid style in American politics.

The reality is that this is a story of institutional incompetence. And Congress should share the blame.

The root of the problem is poor institutional design, not a political conspiracy. Current law forces the IRS to enforce a vague set of campaign finance laws that have next to nothing to do with raising revenue. The conservative groups at issue were applying for tax-exempt status as “social welfare” organizations rather than Section 527 tax-exempt political organizations. The chief benefit of becoming a social welfare organization is the ability to keep the names of one’s donors private. These social welfare organizations may engage in issue advocacy, and may do some lobbying, but are not supposed to engage in political campaigning. How much political activity is too much? No one really knows.

The IRS is supposed to enforce the tax code, not administer a byzantine campaign finance system. It is good at gathering and processing enormous amounts of data that help the nation raise revenue. Under current law, however, it has little choice but to exercise discretion in the constitutionally dangerous waters of campaign finance.

As Lloyd Mayer, a law professor at the University of Notre Dame, explained, “because Congress and the Treasury have left both the definition of political activity and, for [social welfare organizations], the amount of permitted political activity uncertain, the I.R.S. is required to make broad inquiries and to use politically sensitive criteria to decide if a given organization qualifies for tax-exempt status.” ...

For further reading, see

• Donald B. Tobin [Ohio State], Campaign Disclosure and Tax-Exempt Entities: A Quick Repair to the Regulatory Plumbing, 10 Election L.J. 427 (2011)
• Ellen P. Aprill [Loyola-L.A.], Why the I.R.S. Should Want to Develop Rules Regarding Charities and Politics, 62 Case Western Res. L. Rev. 643 (2011)
• Brian D. Galle [Boston College], Charities in Politics: A Reappraisal [, 54 Wm. & Mary L. Rev. ___ (2012). 

Attorney General Orders Criminal Investigation of IRS Targeting of Conservative Groups

• ABA Journal
• Bloomberg
• Fox News
• MSNBC
• New York Times
• Wall Street Journal
• Washington Post

(Hat Tip: Ellen Aprill, Mike Talbert.)

The Legal Job Market: Not As Bad As You Think?

Following up on last week's post, Reconsidering the Conventional Wisdom on the Legal Job Market: 

Raskolnikov: Accepting the Limits of Tax Law and Economics

Alex Raskolnikov (Columbia), Accepting the Limits of Tax Law and Economics, 98 Cornell L. Rev. 523 (2013):

This Article explores the limits of tax law and economics, attributing them to the unique complexity of the tax optimization problem. Designers of the optimal tax system must account for the impossibility of deterring socially undesirable behavior, provide for redistribution, and minimize social costs on the basis of assumptions that are laden with deeply contested value judgments, pervasive empirical uncertainty, or both. Given these challenges, it is hardly surprising that economic theory has a much weaker connection to the content of our tax laws and their enforcement than it does to the content and enforcement of many other legal regimes. This weakness has a profound effect on the debates about the fundamental features of our tax system. It shapes the meaning of the foundational tax concepts. It affects many familiar arguments about anti-avoidance rules and sanctions. And it extends to evaluating outright tax evasion. In sum, the limits of tax law and economics shape every aspect of tax law and tax administration. At the same time, accepting these limits shifts focus to several research agendas where tax law and economics will continue to make valuable contributions to the project of improving our tax system.

Above the Law Critiques Borden's The Coming Resurgence of the Legal Profession and Legal Education

Following up on last week's post, Brad Borden: The Coming Resurgence of the Legal Profession and Legal Education Fueled by Third-Party Litigation Financing:  Above the Law, Third-Party Litigation Financing: The Latest Chimerical Lifeline For The Legal Profession, by Joe Patrice:

[S]ome law firms (and most clients) are realizing that the era of big staffing is over. The “manual labor” of document review and due diligence can be farmed out to the glut of out-of-work attorneys willing to make peanuts to service their loans. An improving economy will drive up the wages they can demand (because they could leave the law entirely to take advantage of better opportunities), but not to the level that once enticed students to law school in droves. If law students aren’t guaranteed of getting boom-era salaries — and the majority of law students never will -- there is nothing that will convince students to take on the debt law schools create unless the schools embrace fundamental change.

Professor Borden seems to be holding out for [third-party litigation financing] to rejustify the status quo legal landscape. TPLF may be a lot of things, but a TARDIS is not one of them.

The challenges facing a stagnant legal market cannot be addressed when you begin from the premise, “How can we go back to exactly where we were before?” It’s the kind of “everything’s cyclical” thinking critiqued in Bruce MacEwan’s new book, Growth Is Dead: Now What?: Law Firms on the Brink.

The IRS Scandal, Day 5

• Treasury Inspector General for Tax Administration, Report on IRS Targeting of Conservative Groups, Appendix VI and Appendix VII
• Senate Finance Committee, Baucus Comments on Accusations that IRS Targeted Political Groups for Greater Oversight
• Senate Finance Committee, Hatch Calls for Finance Committee Hearing, Investigation into IRS Targeting Conservative Groups
• Senate Finance Committee, Timeline of Key Events Surrounding IRS Targeting of Conservative Groups
• Bloomberg, How IRS Stumbled Into Scandal by Probing Its Nonprofits
• Bloomberg, Obama Says IRS Targeting of Tea Party Groups ‘Outrageous’
• Human Events, IRS Scandal Grows Deeper
• New York Times, Obama Scoffs at Libya Outcry but Vows to Act on IRS Audits
• Politico, President Obama: ‘No Patience’ for ‘Outrageous’ IRS Mess
• Pro Publica, IRS Office That Targeted Tea Party Also Disclosed Confidential Docs From Conservative Groups
• Wall Street Journal,  Nobody's Laughing Now: How Pervasive Is the Obama IRS Scandal?
• Wall Street Journal, Obama to Hold IRS Staff ‘Fully Accountable’
• WSJ Law Blog, How the IRS is Supposed to Vet Social Welfare Groups
• Washington Post, IRS Official Lois Lerner Becomes Face of Scandal Over Targeting of Conservative Groups
• Washington Post, Obama Denounces Reported IRS Targeting of Conservative Groups

Prior TaxProf Blog coverage:

• IRS Admits to Targeting Conservative Groups in 2012 Election (May 10, 2013)
• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling (May 11, 2013)
• Schmalbeck on the IRS 'Targeting' of Conservative Groups (May 12, 2013)
• The Deepening IRS Scandal (May 13, 2013)

More on Banning C Grades in Law School

Following up on Friday's post, Law Prof: Let's Scrap the 'Gentleman's C':

• The Volokh Conspiracy:  Eliminating the “C” in Law School Grading?, by Kenneth Anderson (American):

I’d say the professor who hands out a C grade (at least in a school that doesn’t mandate a set number of C grades and perhaps often in those schools as well) and then says, it’s just another grade and is just a data point like any other, is probably wrong as to the perception of the signal. As a social fact about what grades say, in my experience, a low GPA that has several B- but no C grades will often be better (i.e., in its consequences in the real world of employers and jobs) than exactly the same GPA with a C grade. The C grade sends a signal all by itself that is independent of being merely a data point like the rest. I can think of employers who would rule out considering a candidate with a C on the record, but might not rule out someone with the same GPA. Since I think this is so – but don’t think this makes a lot of sense – I agree with Silverstein’s argument that it would be better to get rid of the C grade, unless one is seeking to send a signal of some culpable failure to do the work rather than simply poor performance.

• Above the Law:  The Wussification of Legal Education Continues, by Elie Mystal:

I don’t mean to sound like Col. Nathan Jessup, but Christ on vitamin supplements, instead of playing into the weak-ass mentality of new law students, maybe law school should be training these kids for a life where not everybody can be above average! Some of these kids won’t get jobs, some of these kids will lose trials, some of these kids will have their briefs sent back to them drenched in red. What are these law students supposed to do then? Cry? BITCH ABOUT THEIR PSYCHOLOGICAL WELL-BEING?

Silverstein’s ideas might sound like they are helping students, but really this is the kind of thing that only helps law professors who don’t want to do the hard work of dealing with disappointed millennials confronting their own failure. Not giving out C’s means less time grading, and less time “justifying” the grades to pissed-off law students. It’s just another law school idea that makes things better for the faculty without actually helping students.

Because getting a C — and then coping with it and overcoming it — is probably the most valuable lesson some of these kids will learn in law school.

Brooklyn Law School Responds to Tenured Prof's ABA Complaint

Following up on yesterday's post, Tenured Brooklyn Law Prof Files ABA Complaint Against School: the Brooklyn administration has asked me to post this statement:

We have heard from several faculty members about your blog’s report that an ABA claim has been filed against Brooklyn Law School. While we have yet to receive an official copy of the filing, from what we understand of the complaint, it is unfortunate that this professor has apparently chosen to attempt to gain leverage in what is essentially a personnel issue by complaining to the ABA and in the press. We look forward to addressing the matter with the ABA and are confident that the ABA will find the professor’s claims to be wholly without merit.

For more, see The American Lawyer.

Update:  Above the Law:  The More Law Schools Change, the More Law Faculty Will Start Pitching a Fit, by Elie Mystal

Public College and University President Salaries, 2012-13

Chronicle of Higher Education:  Public College and University President Salaries, 2012-13:

1. Graham B. Spanier (Penn State University):  $2,906,721
2. Jay Gogue (Auburn University):  $2,542,865
3. E. Gordon Gee (Ohio State University):  $1,899,420
4. Alan G. Merten (George Mason University):  $1,869,369
5. Jo Ann M. Gora (Ball State University):  $984,647
6. Mary Sue Coleman (University of Michigan System):  $918,783
7. Charles W. Steger (Virginia Tech):  $857,749
8. Mark G. Yudof (University of California System):  $847,149
9. Bernard J. Machen (University of Florida):  $834,562
10. Francisco G. Cigarroa (University of Texas System):  $815,833

• Chronicle of Higher Education, For Many Public-College Presidents, Home Is an Uncalculated Benefit
• New York Times, Public University Presidents Are Prospering, Annual Compensation Study Finds

Tax Partner Tony Nitti Reflects on His Brain Aneurysm

Inspiring story from tax partner (and blogger) Anthony J. Nitti (WithumSmith & Brown, Aspen, CO), Five Years After a Brain Aneurysm, Fear of Dying Can't Make Me Quit Living:

As I sat down to write today, it dawned on me that this might come off as a touch self-indulgent. But then I realized that a blog, by definition, is inherently self-indulgent, is it not? So here goes…

Five years ago today was the single worst day of my life. Two weeks earlier, a three-month battle with debilitating migraines ended in a terrifying diagnosis: a brain aneurysm. And on the morning of May 9^th, 2008, I kissed my wife goodbye before being wheeled into an operating room, where Dr. Robert Rosenwasser of Thomas Jefferson Hospital proceeded to cut through my skull, recess my brain, and clip off the offending artery. ...

My surgery went fantastically well, and a quick series of self-tests performed while still in my hospital bed confirmed my belief that cognitively, I was completely intact. The physical and emotional recovery, however, was another matter altogether. If there’s one thing I’ve learned throughout this process, it’s that when recovering from a life-threatening ailment, the real challenge often doesn’t begin until the healing is complete. ...

I’ve seen first-hand what fear can do to a man. How visions of a foreshortened future can elevate one’s instinct for self-preservation above all others, driving a person once brimming with life to spend their remaining days in a self-imposed protective bubble. To die without dying. I was desperate to not allow that to happen to me, but I was terrified of the alternative. ...

I realized I’d enjoyed a blessed existence for 33 years prior to my diagnosis, a life devoid of tragedy or adversity. I had supportive parents and a loving wife who would encourage me in my return, despite what was likely their natural instinct to beg me to live out my days from the safety of the couch. In fact, it was my mother who challenged me not to allow one bad experience to become my defining moment. It was she who would remind me, in a way that only an Eastern European mother could pull off, that she would “kick my butt” if I didn’t get back to living my life to the fullest. And I love her for that more than she can ever imagine.

If that weren’t enough motivation, a few months after surgery, my wife and I found out we would be welcoming a son into the world. Faced with that prospect, I knew I couldn’t spend the rest of my days explaining to my boy that Daddy had to quit living out of fear of dying. ...

Five years later, I can proudly say that I have taken my life back, and I hope beyond hope that my story is able to provide inspiration. And to top it all off, just as my father promised, life is better than I ever could have imagined. ...

In addition to our son Ryan, our daughter Emily was born one year ago next week. Anytime I find myself thinking existentially, questioning why I survived when so many don’t, all I need to do is look at my son and daughter, and it all makes sense. I was meant to watch them grow up. ...

But if you take nothing else away from my story from the past year, take away the understanding that happy endings do indeed exist. Sure, life can seem cruel and unjust at times, but every once in a while, it can go the other way too. Life can be beautiful. Life can be just. Life can smile upon you, handing you miracles you never thought possible.

For the past several yars, I have ended my one-week Introduction to Law course for incoming 1Ls with this chorus from One Life to Love by 33 Miles:

You only get just one time around,
You only get one shot at this,
One chance,
To find out,
The one thing that you don't wanna miss,
One day when its all said and done
I hope you see that it was enough,
This one ride,
One try,
One life,
To love.

GAO Finds 60 Deficiencies in IRS's Internal Controls

The Government Accountability Office today released Improvements Are Needed to Enhance the Internal Revenue Service's Internal Controls (GAO-13-420R):

During its audit of the IRS fiscal year 2012 financial statements, GAO identified one new internal control deficiency that contributed to IRS's continuing material weakness in internal control over unpaid tax assessments as of September 30, 2012. Specifically, IRS's controls over its process for estimating the balances of federal taxes receivable and other unpaid tax assessments were not effectively implemented to ensure the proper accounting classification and dollar amounts. In addition, GAO identified the following six less significant, new internal control deficiencies as of September 30, 2012. ...

Further, GAO's work showed that as of September 30, 2012, IRS had completed corrective action on 23 of the 69 recommendations from GAO's prior financial audits and other financial management-related work that remained open at the beginning of the fiscal year 2012 financial audit. As a result, IRS currently has 60 recommendations that need to be addressed, which consist of the previous 46 open recommendations as well as 14 new recommendations GAO is making in this report.

European Leaders Talk Tough on Tax Avoidance While Passing Laws That Encourage It

Bloomberg:  Europe Eases Corporate Tax Dodge as Worker Burdens Rise, by Jesse Drucker:

In early November, members of the U.K. Parliament assailed executives from Google, Starbucks and Amazon for moving billions of dollars in profits into tax havens.  

Less than a month later, Chancellor of the Exchequer George Osborne said he would lower the U.K.’s corporate tax rate to 21%, below Germany and France, from 28% in 2010. A month after that, the U.K. cut the rate further, to less than 6%, on profit attributed to offshore arms that make loans to other units. These subsidiaries can help U.K.-based multinationals shift income to mailboxes in tax havens.

“Here is a blatant incentive inside the U.K. tax system to move profits previously in London into a tax haven,” said Richard Murphy, director of Tax Research LLP in Norfolk, England. “It is just absurd. At the same time, we have people like Osborne saying ’I’m going to crack down on tax avoidance.”’

As politicians in Europe and the U.S. talk tough on corporate tax dodging, several of their governments are helping multinationals lower tax bills. They have been cutting corporate rates, introducing laws that encourage tax avoidance, and rejecting proposals to close loopholes. Even amid growing public outrage in Europe against austerity policies, the gulf between rhetoric and reality on taxation means individuals rather than businesses are often bearing the brunt of higher taxes.

WSJ: IRS Reviews Private Equity Management Fee Waivers

Wall Street Journal:  IRS Eyes a Private-Equity Tax Move, by Mark Maremont:

The IRS is examining the propriety of a tax practice used in some parts of the private-equity industry, in which firms convert management fees into investments that receive more favorable tax treatment, a senior IRS official said at a recent legal conference.

The practice, often called a management-fee waiver or fee-waiver conversion, has been used for years by partners at some of the nation's largest private-equity firms to reduce their taxes, and can involve significant sums. ...

In the main strategy in question, private-equity firms or firm partners voluntarily waive annual or quarterly management fees due to them from investors. Instead, the firms often redirect that fee money to satisfy their own obligations to invest in the funds they manage. That change can turn management fees, currently taxed as ordinary income at federal rates of up to 39.6%, into investments that enjoy capital-gains treatment at lower rates, now starting at 20% for upper-income federal taxpayers....

Proponents have said the strategy is legal, that executives take on risk by redirecting the money into investments and thus should be taxed at lower rates. Some academics have called it aggressive and potentially subject to IRS challenge.

Partly at issue is whether the strategy fits within a 1993 IRS ruling [Rev. Proc. 93-27, 1993-2 CB 343], and whether it potentially triggers a separate law about partnership transactions that would require the income to be taxed at ordinary rates.

Some lawyers say private-equity firms have employed different versions of the tax strategy, along a spectrum ranging from conservative to more aggressive from a tax standpoint.

NY Times: Greek Crackdown on Tax Evasion Yields Little Revenue

New York Times:  Greek Crackdown on Tax Evasion Yields Little Revenue:

If ignominy were tax revenue, Greece might be a big step closer to ending its budget problems. Politicians, business executives and bankers are being raked through the headlines or incarcerated in a white-collar crackdown as the Greek government goes after people suspected of tax dodging. Those under questioning include the former finance minister George Papaconstantinou, in a highly charged parliamentary investigation into his handling of a list of Greeks with foreign bank accounts. ...

Tax evasion lies at the heart of the Greek financial collapse, which has resulted in international bailout loans exceeding 205 billion euros, or $266 billion, the size of Greece’s depressed economy. In fact, Greece’s international creditors have made revamping its notoriously lax tax system a primary condition for any additional bailout financing.

But even after an overhaul of Greece’s tax collection apparatus — and a politically charged campaign to pursue delinquents — government officials have collected only a tiny fraction of what is owed and potentially collectible.

Rather than capture a lot of extra money, the crusade seems mainly to have captured prominent quarry. The net cast by newly empowered prosecutors has snared the former mayor of Salonika, the leader of the Greek national statistical agency and several former cabinet members.

Lawyers and tax officials estimate that hundreds of people have been locked up in the last year, suspected of tax evasion. Under the new laws, someone who owes the government more than 10,000 euros in taxes can be arrested on the spot and given the choice between paying up or being put behind bars. While held, the suspect can wait as long as 18 months before the prosecutor decides on a formal charge.

Despite those efforts, of the estimated 13 billion euros that government officials say is owed by Greece’s 1,500 biggest tax debtors, only about 19 million euros has been collected in the last two and a half years. ...

If Greece’s 1,500 biggest tax debtors paid, the government would easily wipe out its budget deficit for 2013. Analysts estimate that the taxes avoided by Greeks of all income levels total 55 billion euros, which would help Greece return to firmer financial footing.

(Hat Tip: Mike Talbert.)

Johnson & Joulfaian: A Dynamic Analysis of Estate Tax Repeal

Craig E. Johnson & David Joulfaian (both of the U.S. Treasury Department, Office of Tax Analysis), A Dynamic Analysis of Estate Tax Repeal:

This paper examines the effects of permanently repealing the estate tax on capital accumulation and output using two different approaches to modeling the economic distortions resulting from the estate tax. In the first approach, the estate tax acts as an additional tax on capital income. The estate tax rate can be converted into an annual accrual tax rate on capital income that leaves a household with the equivalent amount of after-tax bequest. Assuming the economy-wide marginal accrual estate tax rate equals 1.7 percent, repeal of the estate tax leads to a long-run increase in the capital stock of 1.8 percent when repeal is combined with contemporaneous reductions in lump-sum transfer payments. The capital stock increases by 0.9 percent if repeal is financed by increasing income tax rates in every year. The long-run increase in the capital stock would rise to 3.3 percent if the marginal accrual rate equaled 2.6 percent and lump-sum transfer payments declined annually with repeal of the estate tax.

In the second approach, bequests are taxed directly and the after-tax bequest is included in the household’s utility function in a manner consistent with what is known as the “joy of giving” bequest motive. Under this approach, the long-run capital stock declines when the estate tax is repealed, even when financed by contemporaneous reductions in lump-sum transfer payments. This decline is 0.7 percent when the initial marginal bequest tax rate equals the average rate of 20 percent, and the decline is 0.4 percent when the initial marginal bequest tax rate equals 41 percent.

Olson: Loving and Tax Return Preparation

Nina E. Olson (National Taxpayer Advocate), More Than a 'Mere' Preparer: Loving and Return Preparation, 139 Tax Notes 767 (May 13, 2013):

Each year, tens of millions of taxpayers hire paid practitioners to prepare their Form 1040-series returns because of the overwhelming complexity of the tax code and the amount of money at stake. That has led to significant concerns about incompetent and unscrupulous preparers and their negative impact on taxpayers and compliance. The IRS and Treasury had developed and substantially implemented standards governing preparers when, in Loving v. IRS, a U.S. district court found that Treasury lacked the authority to issue the regulations. The government has appealed the case to the D.C. Circuit. The NTA believes that the district court’s decision in Loving is based in part on an outdated understanding of return preparation and filing. This report makes the case for preparer regulation generally, explains where the district court erred, and illustrates how problems in today’s tax system are directly analogous to the problem Congress sought to address in its original grant of regulatory authority to Treasury. 

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Tenured Brooklyn Law Prof Files ABA Complaint Against School

On the heels of the new standards adopted by Brooklyn Law School for the dismissal of faculty (here and here):  a tenured Brooklyn faculty member has filed an explosive 12-page ABA complaint against the law school:

The matters asserted in this complaint concern issues in the administration of the law school that the complainant believes threaten the ability of the institution to provide a sound program of legal education consistent with the ABA Standards.

The specific allegations pertain to a recent organizational change in the school creating a new office of president; withholding of material information concerning a dean candidate; the full-time employment outside the law school of the current dean; executive decisions of school policy made without faculty input; waste and mismanagement of school resources, including exorbitant administrative and faculty salaries; denial of academic freedom; and retaliatory action threatened for making a complaint to the ABA Accreditation Committee.

Among the serious allegations (citations omitted):

The salaries for executive positions have increased every year without any justification based on performance. Examples of self-dealing have involved appointment of Board members to the salaried teaching staff, free use of luxury apartments to Board members, the payment of exorbitant salaries to administrative officers and selected faculty, salary determinations based on friendship and loyalty rather than merit, and lack of transparency about financial matters of the law school and its faculty. ...

The supra competitive levels of executive compensation along with the salaries paid to the top five professors at the law school, as reported in recent IRS 990 filings, rival and exceed the compensation levels of tenured professors of law at Harvard or Yale. In times of acute crisis in legal education, compensation levels at Brooklyn Law School for a small handful of professors and administrators represent a level of mismanagement, waste, and self-dealing that violates Standards 201, 204, 206 and 404.

Discussion: The total value of the salary and benefits provided to the president of the law school—which include a tax-free furnished apartment complete with designer kitchen and skyline views of Manhattan, a car, and a driver—exceed a million dollars. This is the highest compensation paid to any law school dean or administrator in the United States. The salary and benefits lavished on the administrators of the law school impose a drain on the resources of the institution that detract from the educational mission of the law school, increase tuition costs of students, and add to the financial burden of law school graduates. The health and continued survival of the institution to which I have dedicated my career is threatened by waste, mismanagement and potential self-dealing creating serious violation of Standards 201, 204, 206 and 404.

It will be interesting to see how the Brooklyn Law School administration responds to these serious allegations and what action the ABA takes.

Update:  Brooklyn Law School Responds to Tenured Prof's ABA Complaint

The Deepening IRS Scandal

• American Thinker:  IRS Scandal Deepens: High Officials Knew of Tea Party Targeting in 2011
• CNN:  IRS Abuses Power in Targeting Tea Party
• Fox News:  Republicans Slam IRS Targeting of Tea Party as 'Chilling,' a Form of Intimidation
• The Hill:  Rep. Issa: IRS apology to Tea Party Groups ‘Not an Honest One’
• Legal Insurrection:  IRS Reaped Hatred of Tea Party Sown by Democrats and the Media, by William Jacobson (Cornell)
• Legal Insurrection:  The Washington Post leads on the #IRScandal ... Who Will Follow?
• Mother Jones:  The IRS Shoots Itself in the Foot, Then Reloads
• New York Post:  The Nixon Wing at the IRS
• New York Times:  IRS Focus on Conservatives Gives G.O.P. an Issue to Seize On
• Politico:  5 Questions on the IRS Debacle
• Reuters:  IRS Kept Shifting Targets in Tax-Exempt Groups Scrutiny: Report
• The Volokh Conspiracy:  IRS Scrutinized Teaching the Constitution, by Jonathan Adler (Case Western)
• Wall Street Journal:  Wider Problems Found at IRS: Probe Says Tax Agency Used Sweeping Criteria to Scrutinize Conservative Groups
• Washington Examiner:  Conservatives Want Congress to Audit IRS for Targeting Tea Party
• Washington Post:  IRS Targeted Groups That Criticized the Government, IG Report Says 
• Washington Tims:  IRS Scandal Grows to Include Debt Critics

Prior TaxProf Blog coverage:

• IRS Admits to Targeting Conservative Groups in 2012 Election (May 10, 2013)
• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling (May 11, 2013)
• Schmalbeck on the IRS 'Targeting' of Conservative Groups (May 12, 2013)