TaxProf Blog

ABA Survey on Impact of Recession on Legal Profession

Take this two-minute survey on how you think the recession will affect the legal profession. Results will be published in the January issue of the ABA Journal.

Johnston: Taxes, Dividends, and Patriotism

David Cay Johnston has published Taxes, Dividends, and Patriotism, 121 Tax Notes 865 (Nov. 17, 2008):

There is a better way to solve our national financial crisis than Washington's borrowing bender. A better solution lies in tax policy. ...

[W]here do we get tons of money to stimulate the economy without borrowing? From corporate America. And how? We unlock retained earnings with tax law as the key. American corporations have enormous stores of retained earnings, more than $4 trillion. ...Microsoft has $23.6 billion in cash and liquid assets. Exxon Mobil has $33.9 billion. We need to give companies a powerful tax reason to start writing checks from what amount to corporate savings accounts. ...

My thoughts here are influenced by many economic papers, but particularly by a pioneering analysis in 2004 by NBER researchers Harry DeAngelo, Linda DeAngelo, and René Stulz. [Dividend Policy, Agency Costs, and Earned Equity] This trio of business professors asked, "Why Do Firms Pay Dividends?"  Their answer was that if they didn't, "their asset and capital structures would eventually become untenable as the earnings of successful firms outstrip their investment opportunities." ...

Tax policy offers tools to escape the event horizon of the black hole of public finance -- which is a liquidity trap that government would be helpless to free us from.

For starters, we could make dividends tax deductible for the next two years. That would encourage big payouts.

At the same time, we can persuade investors to demand payouts by setting a tax rate of zero for taxpayers with an adjusted gross income of less than $250,000 and just 10% for the 1 in 50 taxpayers who make more.

Does Your Boss Have to Pay You While Vista Boots Up?

National Law Journal: Is Booting Up a Computer Work, or a Work Break? More Companies Fending Off Suits on the Issue, by Tresa Baldas:

Lawyers are noting a new type of lawsuit, in which employees are suing over time spent booting [up] their computers. ... During the past year, several companies, including AT&T Inc., UnitedHealth Group Inc. and Cigna Corp., have been hit with lawsuits in which employees claimed that they were not paid for the 15- to 30-minute task of booting their computers at the start of each day and logging out at the end. Add those minutes up over a week, and hourly employees are losing some serious pay, argues plaintiffs' lawyer Mark Thierman, a Las Vegas solo practitioner who has filed a handful of computer-booting lawsuits in recent years. ...

Management-side attorney Richard Rosenblatt, a partner in the Princeton, N.J., office of Morgan, Lewis & Bockius who is defending a half-dozen employers in computer-booting lawsuits, ...  believes that, in most cases, computer booting does not warrant being called work. Having spent time in call centers observing work behaviors, he said most employees boot the computer, then engage in nonwork activities. "They go have a smoke, talk to friends, get coffee — they're not working, and all they've done at that point is press a button to power up their computer, or enter in a key word," Rosenblatt said.

Nussim Presents Distributive Aspects of Legal Standards Today at Loyola-L.A

Jacob Nussim (Bar Ilan University; Visiting at UCLA) presents Distributive Aspects of Legal Standards at Loyola-L.A. today as part of its Tax Policy Colloquium Series. The commentators are Robin B. Kar (Loyola-L.A.) & Michael Guttentag (Loyola-L.A.).  The paper responds to Kaplow's and Shavell's argument that redistribution is optimally accomplished through tax and transfer systems.  Here is the abstract:

Externality-generating behavior is typically controlled by legal standards of behavior. A negligence tort regimes sets due care standards; a regulatory regime dictates regulatory standards of behavior. The principal purpose of these legal mechanisms is to control individual behavior. This study shows that, typically, these legal mechanisms generate an additional, incidental, distributive outcomes. In reality, tort victims as well as externality victims are heterogeneous in the potential harm they would suffer if injured, but potential injurers cannot observe ex ante individualized harm (for example, in cases of car accidents or pollution). Therefore, a uniform, rather than individualized, legal standard of behavior is applied in tort or under a regulatory scheme. This paper shows that a negligence (or regulatory) regime with a uniform care standard redistributes among potential victims, whereas an equally (second-best) efficient strict liability regime does not. This overlooked observation instigates several normative implications.

Arkansas Con Law Prof Drops Defamation Lawsuit Against His Students Over Racism Charges

Following up on my earlier post, Arkansas Con Law Prof Sues His Students for Defamation, Claiming They Twisted His Anti-Affirmative Action Views to Accuse Him of Racism (4/30/08):  Today's Inside Higher Ed reports that Arkansas-Little Rock Law Prof Richard J. Peltz has dropped his lawsuit:

After you’ve been called racist by some students, can you sue to get your reputation back?

Richard J. Peltz, who teaches law at the University of Arkansas at Little Rock, tried. The idea of suing students intrigued and worried many observers of the professoriate, and Peltz’s case prompted much discussion about free speech and the respect that should be accorded both professors and students. Peltz has now dropped his suit — but he did so only after the law school agreed to fully investigate the charges against him and after he received a letter affirming that, based on that investigation, he had done nothing racist or inappropriate.

The university has also agreed to discuss allowing Peltz to again teach required courses, which he was barred from offering once the complaints against him were filed.

For more, see ABA Journal.

Current Models of Digital Scholarly Communication

The Association of Research Libraries and the Ithaka group, a nonprofit organization dedicated to fostering the use of information technologies in higher education, have issued a report, Current Models of Digital Scholarly Communication.  The eight models are:

1. E-only journals
2. Reviews
3. Preprints and working papers
4. Encyclopedias, dictionaries, and annotated content
5. Data resources
6. Blogs
7. Discussion forums
8. Professional and academic hubs

See also this week's Chronicle of Higher Education, A New Field Study Identifies Eight Major Types of Digital Scholarship, by Jennifer Howard.  (Hat Tip: Jim Hart.)

Law School Rankings Based on Lawyer Ratings

The lawyer rating website Avvo has produced a Top 5 and Bottom 5 Law School Ranking, based on the average rating of the lawyers who are graduates of the schools.  Here are the Avvo ratings for the Top 5 and Bottom 5 schools, along with the schools' corresponding U.S. News overall and peer rankings:

   

(Hat Tip: ABA Journal.)

Voluntary Disclosure Update for U.S. UBS Clients

William M. Sharp Sr. & Larry R. Kemm (both of Sharp & Associates, Tampa) have published Voluntary Disclosure Update for U.S. UBS Clients, 52 Tax Notes Int'l 487 (Nov. 10, 2008):

Because of recent developments, U.S. taxpayers who maintain undisclosed accounts with UBS AG in Switzerland will be required to close their accounts. Many taxpayers are seeking guidance to address U.S. legal and tax issues related to becoming U.S. tax compliant. One way to become compliant with U.S. law while also minimizing U.S. criminal and civil tax exposure is through the Internal Revenue Service's voluntary disclosure program.

For prior TaxProf Blog coverage, see The UBS Summons and IRS Voluntary Disclosure (9/28/08).  See also Washington Post: UBS Is Closing Down Accounts; U.S. Clients at Risk of Exposure, by David S. Hilzenrath:

Swiss banking giant UBS, under investigation by the U.S. government for allegedly helping Americans hide money from the IRS, is closing thousands of accounts, putting clients at greater risk of being exposed, tax lawyers say.

UBS clients have been receiving calls and letters telling them that their Swiss accounts will soon be liquidated. Those who have concealed funds from the IRS have two basic choices: They can take new and potentially difficult steps to hide the money, heightening their risk of being caught and punished severely, or they can come clean, lawyers say.

TaxProf Blog Weekend Roundup

Saturday:

• Lawyer Indicted for HOMER Tax Shelter Fraud
• Grassley Seeks Investigation of IRS's Issuance of Bank Bailout Notice 2008-83
• Rangel Hires Accountant to Scrub Tax Returns

Sunday:

• Top 5 Tax Paper Downloads
• Rooneys Race to Sell Pittsburgh Steelers to Avoid Obama Tax Increase
• Divided D.C. Circuit OKs Deviation From Sentencing Guidelines to Give Probation in Tax Fraud Case
• Rangel to Push for 28% Corporate Tax Rate

Top 5 Tax Paper Downloads

There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with new papers debuting on the list at # 3 and #5:

1.  [478 Downloads]  A Brief Analysis of Governor Palin's Tax Returns for 2006 and 2007, by Bryan Camp (Texas Tech)  [blogged here]

2.  [146 Downloads] The Use and Interpretation of Tax Treaties in the Emerging World: Theory and Implications, by Eduardo A. Baistrocchi (Universidad Torcuato Di Tella)  [blogged here]

3.  [146 Downloads]  2008 Federal Tax Update, by Samuel A. Donaldson (University of Washington)  [blogged here]

4.  [133 Downloads]  What Should Society Expect from Heirs? A Proposal for a Comprehensive Inheritance Tax, by Lily L. Batchelder (NYU)  [blogged here]

5.  [112 Downloads]  A Malthusian Analysis of the So-Called Dynasty Trust, by William Turnier (North Carolina) & Jeffrey Lynch Harrison (Florida)  [blogged here]

Rooneys Race to Sell Pittsburgh Steelers to Avoid Obama Tax Increase

Life-long Republican Dan Rooney, Chairman and owner of 16% of the stock of the Pittsburgh Steelers, raised eyebrows this fall with his outspoken support of Barack Obama.  The Pittsburgh press is reporting that Rooney and his son have reached agreement to buy out the 16% ownership stakes held by each of his four brothers and are racing to close the sale by year-end to avoid the expected increase in the capital gains tax rate under President-elect Obama.

• Don't Mess With Taxes (11/16/08)
• Pittsburgh Observer-Reporter (11/16/08)
• Pittsburgh Post-Gazette (11/15/08)
• Pittsburgh Post-Gazette (11/16/08)
• Pittsburgh Tribune-Review (11/15/08)

Prior TaxProf Blog coverage:

• Taxes and the Sale of the Pittsburgh Steelers (7/10/08)
• More on the Role of Taxes in a Sale of the Pittsburgh Steelers (7/16/08)

Divided D.C. Circuit OKs Deviation From Sentencing Guidelines to Give Probation in Tax Fraud Case

On Friday, the D.C. Circuit ruled 2-1 to affirm the district court's decision to impose probation and a fine for defendant's conviction for filing a false income tax return.  United States v. Gardellini, No. 07-3089 (D.C. Cir. Nov. 14, 2008):

Gus Gardellini pled guilty to filing a false income tax return in violation of 26 U.S.C. § 7206(1). Given Gardellini’s offense and offender characteristics, the applicable advisory Guidelines range was 10 to 16 months of imprisonment. ...  The District Court imposed probation and a fine. On appeal, the Government challenges that below-Guidelines sentence as substantively unreasonable. But the Government’s Guidelines-centric appellate argument overlooks the twin points that the Supreme Court has stressed in its recent sentencing decisions: The Guidelines now are advisory only, and substantive appellate review in sentencing cases is narrow and deferential. As the case law in the courts of appeals since Gall demonstrates, it will be the unusual case when we reverse a district court sentence – whether within, above, or below the applicable Guidelines range – as substantively unreasonable. Based on the principles set forth in Booker and Gall, we affirm the District Court’s judgment in this case.

Judge Williams dissented on the ground that the district judge improperly disregarded the deterrent value of deterrence in criminal tax sentencing:

In Gardellini’s non-newsworthy case, accordingly, the [district] court effectively dismissed the deterrent effect of a sentence as irrelevant.  But deterrence is a primary consideration in choosing the appropriate sentence for any tax crime, newsworthy or not. As the Guidelines explain,

Because of the limited number of criminal tax prosecutions relative to the estimated incidence of such violations, deterring others from violating the tax laws is a primary consideration underlying these guidelines. ...

The Guidelines’ generalization is quite sound. The resources available for tax enforcement are scarce and the probability of getting caught is low. In fact, for fiscal year 2007, the IRS audited only 1.03% of all individual returns. Internal Revenue Service, Fiscal Year 2007 IRS Enforcement and Service Statistics 3.  ...  Though Gardellini’s income probably gave him a more-than-average likelihood of an audit, the chance was still quite low. See id. at 4 (reporting the audit statistic for those with incomes exceeding $100,000 and $200,000 as 1.77% and 2.87%, respectively). Assuming an audit risk of 3%, the $15,000 fine imposed had an ex ante expected value of less than $500; taxpayers who are tempted to cheat, and who observe Gardellini’s treatment, will find the risk-reward ratio very attractive. ...

The district court’s decision was a textbook example of an abuse of discretion, making Gardellini’s sentence substantively unreasonable. I respectfully dissent from the majority’s contrary conclusion.

Rangel to Push for 28% Corporate Tax Rate

Bloomberg:  Rangel Plans Push to Cut Top Corporate Tax Rate to 28 Percent, by Ryan J. Donmoyer & Peter Cook

New York Representative Charles Rangel said he's revising his tax overhaul proposal to reduce U.S. corporate tax rates to 28%, down from the current rate of 35%.

Rangel ... said he's changing the "mother of all tax reform" he unveiled in September 2007 to accommodate President-elect Barack Obama's agenda. That earlier plan would have set the corporate tax rate at 30.5%. Rangel is the chairman of the House Ways and Means Committee, which oversees tax policy. ...

Only Japan has a higher marginal corporate tax rate among developed nations, the Treasury Department said last year. When state taxes are factored in, U.S. corporations pay about 39% on their last dollar of profit.

Obama has said that the effective tax rate paid by U.S. companies is much lower once they claim deductions, credits, and other adjustments to taxable income. In 2006, for example, American companies paid an average effective tax rate of about 23.7%, according to a study by Ernst & Young.

Lawyer Indicted for HOMER Tax Shelter Fraud

From Friday's DOJ press release:

John B. Ohle III, a former member of the tax shelter promotion group at a national bank, has been charged with conspiring with lawyers at the law firm of Jenkens & Gilchrist and others to defraud the United States in the sale of a tax shelter known as "HOMER," the U.S. Attorney’s Office for the Southern District of New York, the Tax Division of the Department of Justice and the IRS announced today.

According to the indictment, between 1999 and 2002, Ohle was a supervisor in the Chicago office of a national bank’s "Innovative Strategies Group" (ISG). The indictment states that ISG provided estate planning and tax shelter strategies for high net worth clients, including a tax shelter called "Hedge Option Monetization of Economic Remainder" or HOMER. ISG sold 36 HOMER strategies to wealthy clients in 2001, according to the indictment, creating almost $430 million in fraudulent tax losses and resulting in the evasion of approximately $100 million in taxes.

Continue reading "Lawyer Indicted for HOMER Tax Shelter Fraud"

Grassley Seeks Investigation of IRS's Issuance of Bank Bailout Notice 2008-83

Senate Finance Committee ranking member Charles Grassley has sent this letter to the Treasury Inspector General asking him to investigate the issuance of Notice 2008-83, which lifted restrictions on the ability of banks to use NOLs after an acquisition.  Grassley raised concerns about both Treasury's legal authority to issue the notice and possible conflicts of interest involving Treasury officials, former Goldman Sachs executives, and board members in the sale of Wachovia Corporation to Wells Fargo. 

See Bloomberg News:  Grassley Seeks Probe of Tax Ruling Before Wachovia Takeover, by Ryan J. Donmoyer

Prior TaxProf Blog coverage:

• Financial Bailout NOL Tax Break to Cost CA $2b (11/12/08)
• Tax Lawyers Decry Financial Bailout NOL Tax Break for Banks (11/10/08)
• Bailout Tax Break Worth $5.1 Billion to PNC Bank in Purchase of National City (10/30/08)
• What Is the IRS's Authority for Expanding Bailout Tax Breaks? (10/19/08)

Rangel Hires Accountant to Scrub Tax Returns

Embattled House Ways & Means Chair Charles Rangel has hired an accounting firm to scrub his tax returns to look for additional errors:

• Associated Press
• The Hill
• New York Post
• New York Times
• NY1

I wonder if the accounting firm will charge less than Lanny Davis and the tax lawyers at Orrick, Herrington & Sutcliffe  -- $120,000, paid for by Rangel's election committee (in possible violation of rules prohibiting the use of campaign funds for personal purposes):

• American Lawyer
• New York Post

Prior TaxProf Blog coverage:

• More Rangel Tax Troubles: Untaxed Free Parking (9/18/08)
• Rangel Refuses to Step Down as Ways & Means Committee Chair (9/16/08)
• NY Times: Rangel Should Resign as Ways & Means Chair (9/15/08)
• Rangel Episode Shows Need to Audit Tax Returns of Ways & Means Committee (9/10/08)
• Rangel Failed to Report $75k Rental Income From Second Home (9/5/08)

Bankman Testifies on Tax Treatment of Hedge Fund Managers

Joe Bankman (Stanford) has had a busy week:  he testified at yesterday's hearing of the House Oversight and Government Reform Committee on Hedge Funds and the Financial Market.  Here is Joe's recommendation:

The tax advantage of deferral of management fees was eliminated by new Internal Revenue Code Section 457, enacted as part of the Emergency Economic Stabilization Act of 2008. That provision is effective beginning in calendar year 2009. Thus, 2008 will be the last year in which fund managers will benefit from deferral. The Alternative Minimum Tax Relief Act of 2008 contained a provision that would have taxed carry at ordinary income rates. That Act passed the House of Representatives in June, 2008, but died in the Senate. Thus, carry remains tax-favored. I recommend that Congress eliminate the tax advantage given to carry by again passing a measure similar to that contained in the Alternative Minimum Tax Relief Act of 2008. I recommend, though, that such a measure be amended to address the concerns expressed in the New York State Bar Association Report on Proposed Carried Interest and Deferred Fee Legislation.

(Hat Tip: Katie Pratt.)

WSJ: AIG Uses Bailout Funds to Sue IRS for $329m Tax Refund

Wall Street Journal: AIG's Tax Dispute With U.S. Has Twist of Irony, by Jesse Drucker:

American International Group Inc. is in a battle with the Internal Revenue Service over $329 million in back taxes and penalties in part stemming from the company's use of a type of transaction the IRS has called "abusive," securities filings show.

The tax dispute puts AIG -- recipient of a $150 billion federal bailout -- in the peculiar position of effectively using government funding to fight the U.S. government.

The clash dates from before the bailout: The company disclosed in a securities filing this week that it filed a "claim for refund" with the IRS. The dispute was first disclosed in May. ...

The company says the IRS is asserting $329 million in back taxes and penalties, a portion of which related to "the disallowance of foreign tax credits associated with cross-border financing transactions."

MGM Mirage CEO Resigns After USC Denies He Earned MBA

• Associated Press
• Bloomberg
• L.A. Times
• Wall Street Journal

Peroni Presents Better Than Exemption Today at Toronto

Robert J. Peroni (Texas) presents Better Than Exemption (with J. Clifton Fleming, Jr. (BYU) & Stephen E. Shay (Ropes & Gray, Boston) at the University of Toronto today as part of the James Hausman Tax Law and Policy Workshop Series.  Here is the Conclusion:

In this article, we have discussed how various defects in the current U.S. international tax system—deferral, generous transfer pricing rules, defective income sourcing and expense allocation rules, generous cross-crediting, the export sales source rule, the effectively tax-exempt treatment of many types of foreign-source royalties, and the deduction of foreign losses against U.S. source income—can be combined to make the present U.S. system as generous as, and in some important respects more generous than, a properly designed exemption or territorial system for taxing foreign-source income of U.S. resident corporations. Because of this, the U.S. multinational corporate community largely has shifted its lobbying efforts away from support for an exemption or territorial system for foreign-source income and toward support for changes in the current incoherent international tax system that would further reduce the effective U.S. income tax rate on U.S. corporations’ foreign-source income. In our view, reform efforts in the international tax area should be directed toward comparing the strengths and weaknesses of a properly designed worldwide system with the strengths and weaknesses of a properly designed exemption system, and then proceeding to enact one of those two coherent systems for taxing the international income of U.S. persons. Based on our prior scholarly work in the international tax area, we believe that such an analysis will lead to a conclusion that a strengthened and properly designed worldwide system is superior to a properly designed territorial system and is definitely superior to our defective and incoherent current U.S. international tax system.

There Goes My Job in the Obama Administration

Check out the seven-page, 63-item questionnaire that the Obama transition team is requiring prospective cabinet members and other high-level officials to fill out.  Item 10 is quite a problem for bloggers:

10.  Writings:  Please list and, if readily available, provide a copy of each book, article, column or publication (including but not limited to any posts or comments on blogs or other websites) you have authored, individually or with others. ...

Since I have made over 12,000 posts on TaxProf Blog, complying with this requirement would be an onerous chore.  My saucy emails and text messages to my wife also would get me in trouble:

13.  Electronic communications:  If you have ever sent an electronic communication, including but not limited to email, text message or instant message, that could suggest a conflict of interest or be a possible source of embarrassment to you, your family, or the President-Elect if it were made public, please describe.

Here are the tax portions of the questionnaire:

V.  Tax Information

33.  Please furnish a copy of each federal and state (and, if applicable, municipal or foreign) tax return, including any amended return, for 2005 and all subsequent years.  [For John McCain:]  If filed separately, furnish the same documents for your spouse.

34.  Have you and your spouse filed all required federal, state, local and foreign income tax returns?

35.  Have you or your spouse ever filed a late tax return without a valid extension?  If so, describe the circumstances and resolution of the matter.

36. Have you ever paid any tax penalties? If so, describe the circumstances and the resolution of the matter.

37. Has a tax lien or other collection procedure ever been instituted against you or your spouse by federal, state or local authorities?  If so, describe the circumstances and the resolution of the matter.

38.  Have you ever not paid U.S. and/or state income taxes because you were not resident in the United States, or for any other reason?

39.  Have you ever been or do you have any expectation that you will be the subject of any tax, financial, or other audit or inquiry?  if so, please describe.

40.  Have you ever participated in any investment program or partnership which has been audited or investigated by federal, state or local authorities.  if so, describe the circumstances and the resolution of the matter.

VII.  Domestic Help

53.  Do you presently have or have you in the best had occasional (to be sure, a monthly housekeeper is covered) or regular domestic help? (e.g., a housekeeper, babysitter, nanny, or gardener)  if yes, please indicate the name and years of service of each individual and also provide a brief description of the services rendered.

54.  [For Mitt Romney:]  Were all individuals listed in Question [53] legally eligible to do work in the U.S. at the time you employed them?

55.  Have you paid all taxes and social security obligations applicable to the employment of the individuals listed in Question [53]?  Do you use an outside service to pay such individuals?  Have all payments related to the employment of these individuals been made in a timely fashion?  If not, please identify the length and reason for the delay(s).

56.  have you complied with all federal, state and local laws and regulations related to the employment of individuals listed in Question [53]?

9th Global Conference on Environmental Taxation

Several U.S. Tax Profs presented papers at the 9th Global Conference on Environmental Taxation at the National University of Singapore:

• Mona L Hymel (Arizona). Tax Credits for Nuclear Energy – To Be or Not to Be?
• Roberta Mann (Widener), Crouching Lobbyist, Hidden Subsidy? How to Overcome Politics and Find Our Green Destiny
• Janet Milne (Vermont), Urban Emissions and Market-Based Administration: Burdens and Risks
• Nancy Shurtz (Oregon), The Role of Environmental Tax and Market Mechanisms in the Green Building Movement: The Case of Portland, Oregon

Noonan & Trachtenberg: An End to the Temporary Stay Test in New York?

Timothy P. Noonan & Jack Trachtenberg (both of Hodgson Russ, Buffalo) have published An End to the Temporary Stay Test in New York?, 50 State Tax Notes 383 (Nov. 10, 2008):

The tax department has recently proposed a repeal of the regulatory provisions regarding temporary stays that is contained in New York's Personal Income Tax Regulations. On October 15 the department published its proposal for repealing these provisions for tax years ending in 2008.3 In this article, we examine the proposed change.

Slemrod Presents Coase, Calabresi & Optimal Tax Policy Today at Columbia

Joel Slemrod (Michigan) presents Of Coase, Calabresi,and Optimal Tax Policy (with Kyle D. Logue (Michigan)) at Columbia today as part of its Tax Policy Colloquium Series.  Here is the Conclusion:

Two venerable but heretofore parallel scholarly traditions, tax remittance invariance propositions and Coasean variance and invariance assertions in a product liability context, share much in common. In both settings an equilibrating price will determine which side of the market bears the costs, either of a harm or a tax obligation, and in both settings there is the possibility of “off-market” negotiation that will reach private-cost reducing agreements.

They differ in the centrality for the TRIPs of the enforcement of tax obligations by the government. In contract law, for example, the presumption that maximizing joint benefit is efficient presumes that there are no third parties involved, but introducing a third party is not central. In tax the third party (the government, as an agent for all citizens) is central, and in particular bargains that reduce joint compliance costs may, by increasing the enforcement costs of raising revenue, not be socially optimal. To clarify that difference, we introduce the semantic distinction between the least-cost harm avoider, a modification of a standard term in tort analysis that corresponds to tax compliance costs, and the least-cost liability avoider, which is critically important in tax because the private cost saving due to evasion of tax liability does not correspond to a social cost saving, and in fact entails additional enforcement costs.

Brooks Presents Tax Law: The Price We Pay For Civilization Today at McGill

Kimberly Brooks (McGill) presents Taxation Law: The Price We Pay For Civilization at McGill today as part of its Faculty Workshop Series.

Lustig Presents Company-Owned Life Insurance Today at BC

Eric A. Lustig (New England) presents From Dilbert to Murder-Mystery: The Strange Case of Company-Owned Life Insurance at Boston College today as part of its Tax Policy Workshop Series.  Here is part of the Introduction:

COLI plans have generated litigation in three different arenas. First, the use of COLI plans as a tax shelter has been challenged on two fronts. The first attack is through recent legislation restricting the tax benefits derived by owning COLI policies. In addition, the IRS has been largely successful in challenging interest deductions taken by COLI plan holders. Courts have generally upheld the IRS’s disallowance based on the common law doctrine of substantial economic effect and sham doctrine.

Continue reading "Lustig Presents Company-Owned Life Insurance Today at BC"

WSJ: Tax Data Highlight Corporate Loopholes

Wall Street Journal: Tax Data Highlight Corporate Loopholes, by Jesse Drucker:

The IRS found that U.S. companies paid federal income taxes on their reported U.S. profits at far less than the 35% statutory rate, offering a potential revenue source for an incoming presidential administration that faces a yawning budget deficit.

Newly released data from the IRS show companies paid federal and foreign income taxes on their U.S. book income -- the amount reported to shareholders -- at a rate of 25.3% during 2005, the most recent year for which data were made available by the IRS. ...

The IRS data are based on filings by 38,516 U.S. companies with fiscal years that ended between July 2005 and June 2006. The data on effective tax rates were included in tables accompanying an article by IRS researchers in the trade journal Tax Notes.  [Charles E. Boynton, Portia DeFelippes & Ellen J. Legel, A First Look at 2005 Schedule M-3 Corporate Reporting, 121 Tax Notes 563 (Nov. 3, 2008).]

2008 Tannenwald Writing Competition Results

Results in the 2008 Tannenwald Writing Competition, sponsored by the Theodore Tannenwald, Jr. Foundation for Excellence in Tax Scholarship and the American College of Tax Counsel:

First Prize ($3,500):  Kathryn A. Fuehrmeyer (Notre Dame), Cutting Out the Middleman:  Allowing Offshore Debt-Financed Investments by Tax Exempt Organizations.  Faculty Sponsore:  Lloyd H. Mayer.

Second Prize ($2,500):  Andrew D. Appleby (Wake Forest), How the IRS Should Tax Record-Setting Baseballs and Other Found Property Under the Treasure Trove Regulation.  Faculty Sponsor:  Joel S. Newman. 

Third Prize ($1,500):  Leslie J. Carter (Chicago), Blowing the Whistle on Avoiding Use Tax on Online Purchases.  Faculty Sponsor:  Julie Roin.

Morris: The Economic Significance of § 121

Michael H. Morris (University of Notre Dame, Mendoza College of Business) has published The Relevance of the Principal Residence Gain Exclusion,121 Tax Notes 684 (Nov. 10, 2008).  Here is the Conclusion:

The results of this study provide several important contributions to the economic significance of § 121. First, although touted as the pack and move strategy with implications that the exclusion can be used every two years to save large amounts of capital gains taxes, the provision could be used that often by relatively few taxpayers, and many could not use it more than once in a lifetime. Second, because of the structure of the provision and the positive correlation between housing prices and appreciation rates, the tax benefits from multiple uses of § 121 are not available to the highest and lowest of the socioeconomic groups in the United States. For the low segment, substantial capital gains will be limited even over long periods of time, which eliminates the incremental tax benefits of the pack and move strategy for this group of taxpayers. For the high segment, implementing the provision multiple times can yield negative tax benefits relative to simple deferral. Third, those taxpayers experiencing intermediate housing prices and intermediate levels of appreciation can generate positive tax benefits from multiple uses of the provision. However, only 20% of the MSAs are able to generate 10% to 12% increments to wealth, and significant transaction costs could reduce or eliminate much of the tax savings from multiple uses of the exclusion, even for this segment of taxpayers. These combined results should be helpful to tax planners and be of interest to policymakers, who are considering limits to multiple uses of § 121.

Texas to Raise $200m to Crack U.S. News Top 10

Austin American-Statesman: Law School Dean Trying to Break Into Top 10 Rankings:

Lawrence Sager knows he will be measured by his ability to raise the $200 million he has promised to add to the University of Texas School of Law's endowment. ... If he can raise the money by the university's 2014 deadline, he will nearly double the current $202 million endowment and exceed by fivefold the most money ever raised in a single drive for the law school.

Hitting his $200 million target, Sager says, is crucial to attracting top faculty and the best students, essential ingredients in his drive to elevate the school from 16th in annual U.S. News and World Report rankings to the Top 10, alongside law schools such as Yale, Harvard and Stanford. For the past 20 years, UT School of Law has maintained a ranking in the Top 20 but never cracked the Top 10. ...

"You find yourself worrying about the rankings much too much, but you can't not care about these rankings," Sager said. "They affect your ability to attract the best students and faculty. One of the key ways to affect those rankings is to spend more money."

(Hat Tip: ABA Journal.)

NY Post: Abuse Rampant at Celebrity Charities

Sophie E. Smith (Temple) of our sister Nonprofit Law Prof Blog has a great discussion of various abuses uncovered by the New York Post's examination of the tax returns of ten celebrity charities, including Tyra Banks, Bono, George Clooney, Magic Johnson, and Larry King.  It's Charity -- Hollywood Style:  A Look at the Books of 10 'Cause' Celebs, by Isabel Vincent & Melissa Klein.

UBS Official Indicted for Tax Evasion

• Department of Justice Press Release
• ABA Journal
• ABC News
• American Lawyer
• Associated Press
• Bloomberg
• New York Times
• Reuters
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Another Reason to Cherish This Job

I wake up every morning incredibly thankful that I have this job -- I honestly think it is the best job in the world. And tenure (with a generous defined-benefit plan backed by the State of Ohio) is especially comforting in these increasingly scary economic times.  Today's Inside Higher Ed brings yet another reason to cherish our Tax Prof jobs:  6-6 Course Loads and No Benefits, by Scott Jaschik:

Consider Chandra G. Elkins, who teaches composition and developmental reading at Tennessee Tech University and Nashville State Technical Community College. She typically teaches a 5-5 course load and tries to pick up a summer course or two as well. Last year, teaching ten courses over the course of a year, she earned $15,210. This year, she is hoping to earn more, so she has added a sixth course for next semester, which she will teach at Motlow State Community College. “It’s really depressing. I have to really, really love my job,” she said. “Literally, I could quit my job and get a job at the local Wal-Mart full time and make more money and have benefits.”

Sheila Sullivan teaches at the same colleges as an adjunct. By teaching a 6-6 load, plus summer work, she is able to get her total income up in the $24,000-$26,000 range (no benefits).

12 courses a year -- that is the normal workload over four years for a law professor at most schools!

Mason Presents Welfare, Tax Incentives and Labor Mobility Today at Penn

Ruth Mason (UConn) presents Welfare, Tax Incentives, and Labor Mobility at Pennsylvania today as part of its Tax Law and Policy Seminar Series. Here is the abstract:

The article deals with the question of whether the source state or the residence state should grant personal tax expenditures to cross-border workers. While the entitlement of states to tax cross-border income has been closely examined since at least the 1920s as part of the League of Nations and later the OECD Model tax treaty process, surprisingly little attention has been paid to the complementary question of which state should have the obligation to confer social welfare benefits and tax incentives administered through the tax code to cross-border workers. The Article considers the question from the perspectives of culture and democratic political theory, taxpayer and inter-nation equity, global economic efficiency and the efficiency of the particular tax incentives.

Warren Buffett: Estate Tax Hypocrite?

Edward A. Zelinsky (Cardozo):  Warren Buffett and the Estate Tax (Oxford University Press Blog):

Among his other observations, Buffett has correctly noted the dangers to a democracy of inherited wealth as well as the moral obligation of those who have done particularly well in American society to give back to that society. ...  These concerns have led Buffett to support retention of the federal estate tax and to express dismay that his federal income tax bracket is lower than his secretary’s. ...

All of this leaves me perplexed by the way Buffett is contributing the bulk of his assets to the Bill and Melinda Gates Foundation. Buffett has received excellent legal advice to guarantee that his contributions will not generate federal tax. This provokes the question: Why?

Buffett could give his fortune to the Gates Foundation in a manner which generates federal tax. This would leave less for the foundation but more for the federal fisc. Indeed, Bill Gates, like Warren Buffett, advocates retaining the federal estate tax. He too could leave his assets to his foundation in a fashion which would share part of those assets with Uncle Sam

 It seems strange for prominent and outspoken advocates of the federal estate tax to dispose of their assets in a manner meticulously designed to avoid the federal estate tax. ...  The same skilled lawyers who arranged for Buffett’s fortune to go the Gates Foundation tax-free could instead arrange for Buffett’s assets to go to this foundation on a taxable basis. The resulting payment to the federal Treasury would demonstrate that the sage of Omaha is willing to put his money where he says his heart is.

Big Winner of World Series of Poker: The Tax Man

The big winner at this year's World Series of Poker:  the tax man.  Russ Fox computes the tax liability of the final nine players on their $32.7 million of winnings as $14.3 million -- a 43.7% tax rate:

1. Peter Eastgate (Denmark) won $9,152,416 -- $6,660,545 Denmark tax (72.8% rate)
2. Ivan Demidov (Russia) won $5,809,595 -- $755,247 Russian tax (13.0% rate)
3. Dennis Phillips (IL) won $4,517,773 -- $1,568,950 federal tax, $135,533 state tax (37.7% rate)
4. Ylon Schwartz (NY) won $3,774,974 -- $1,396,304 federal tax, $387,966 state tax (47.3% rate)
5. Scott Montgomery (Canada) won $3,096,768 -- $929,030 withholding tax (30.0% rate)
6. Darus Suharto (Toronto) won $2,418,562 -- $725,569 withholding tax (30.0% rate)
7. David Rheem (CA) won $1,772,650 -- $651,262 federal tax, $170,302 state tax (46.3% rate)
8. Kelly Kim (CA) won $1,288,217 -- $470,995 federal tax, $121,074 state tax (46.0% rate)
9. Craig Marquis (TX) won $900,670 -- $328,911 federal tax (36.5% rate)

Top Public Interest Law Schools

The November 2008 issue of The National Jurist ranks the Top 60 law schools for public interest law, determined by an equal weighting of three categories:

• Student Involvement:  "The student involvement category assigned points for student activity and percentage of graduates of the Class of 2006 who entered jobs in the public interest field (defined as jobs in legal services, nonprofit organizations and public defender offices, but not including government jobs or judicial clerkships generally)."
• Curriculum:  "The curriculum category assigned points for the existence of a public interest coordinator, strength of clinical programs, and existence of a voluntary or mandatory pro bono graduation requirement."
• Finances:  "The financial factors category assigned points for cost of tuition, availability of grants and scholarships and strength of loan repayment or loan assistance programs."

Here are the Top 25 Public Interest Law Schools:

1. Northeastern
2. Loyola-L.A.
3. Lewis & Clark
4. American
5. Stanford
6. Mercer
7. Maryland
8. University of Washington
9. North Carolina
10. CUNY
11. Hofstra
12. William Mitchell
13. Iowa
14. Baltimore
15. New York Law School
16. Seattle
17. Temple
18. Albany
19. Georgetown
20. Villanova
21. UNLV
22. Gonzaga
23. Loyola-Chicago
24. Arizona
25. Roger Williams

19th Annual Philadelphia Tax Conference

The 19th Annual Philadelphia Tax Conference kicks off today.  For a list of speakers and their topics, see here.

Financial Bailout NOL Tax Break to Cost CA $2b

Following up on Monday's post, Tax Lawyers Decry Financial Bailout NOL Tax Break for Banks:  L.A. Times, Bush's Tax Breaks for Banks Could Cost California $2 Billion, by Evan Halper:

Even as California's fiscal woes mount, the state is slated to lose an additional $2 billion in coming years as a result of new tax breaks the Bush administration created for a small group of banks including California-based Wells Fargo. ...

The move is provoking anger among lawmakers and activists from Washington to Sacramento. The primary beneficiary here will be Wells Fargo, which acquired Wachovia Corp. days after the Bush administration changed the tax law. ...

At issue is the extent to which banks can write off losses they absorb when taking over other banks. Decades-old limits on those write-offs were removed by the Treasury Department on Sept. 30. An estimate by the law firm Jones Day, which represents banks, found that the change will save banks as much as $140 billion, mostly in federal tax relief.

Officials at the state Franchise Tax Board, California's tax collection agency, say state law requires them to conform with the new rule.

For more, see Associated Press, ataxingmatter and Talking Taxes.

Obama Backs Crackdown on Tax Havens

The Guardian: Obama Backs Crackdown on Tax Havens, by Nick Mathiason & Heather Stewart:

President-elect Barack Obama plans to crack down on international tax havens, including Jersey, Guernsey and the Isle of Man, within weeks of taking power in January, putting him on a collision course with Gordon Brown.

There is growing international pressure to outlaw the secretive practices of tax havens as a key part of reforms to the world's battered financial system, as the leaders of the world's 20 most powerful economies gather for a major conference in Washington next weekend.

Britain has been notably lukewarm, but Obama, whose approval will be key to any reform package over the next 12 months, was one of the signatories of the Stop Tax Haven Abuse Act, legislation put to Congress last year that blacklisted Jersey, Guernsey and 32 other jurisdictions. Key aides to Obama said he will introduce a similar law as part of a wide-ranging revenue-raising and tax-reform package, within weeks of taking power.

House Mulls Changes in Tax Treatment of Derivatives

Dow Jones:  House Ways and Means Staff Weigh Tax Changes For Derivatives, by Martin Vaughan:

House Ways and Means Committee staffers are exploring a possible rewrite of tax rules governing financial derivative products. The effort, still in its nascent stages, is aimed at finding a comprehensive approach to taxing derivatives, that could replace what some observers argue is an arbitrary and patchwork approach.

John Buckley, chief tax counsel for Ways and Means Committee Democrats, hosted a meeting in late October with around a dozen academics and tax lawyers to get input on possible changes to the system. Tax staff for Senate Finance Committee Chairman Max Baucus, D-Mont., also attended, according to people with knowledge of the meeting.

Law Student Pummels Intruder Who Tried to Steal His Laptop

From Tempe, Arizona TV station KPHO and Above the Law:

ASU student Alex Botsios said he had no problem giving a nighttime intruder his wallet and guitars. When the man asked for Botsios' laptop, however, the first-year law student drew the line.

"I was like, 'Dude, no -- please, no!" Botsios said. "I have all my case notes...that's four months of work!"

That's when Botsios showed him exactly how important case notes are to a law school student. He wrestled his bat away, punched the guy repeatedly, and called police.

Botsios just had a bruised knuckle and a few scratches, while the intruder looked like this. He had to be taken for stitches before being booked for armed robbery and kidnapping.