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Friday, April 11, 2014

Weekly Student Tax Note Roundup

Crawford & Blattmachr: Planning With Portability Do-Overs

Tax Analysys Logo (2013)Bridget J. Crawford (Pace) & Jonathan G. Blattmachr (Interactive Legal Systems), Planning With Portability Do-Overs (But Only for a Limited Time), 143 Tax Notes 117 (Apr. 7, 2014):

In this article, the authors discuss Rev. Proc. 2014-18, in which the IRS provides some estates with a simplified method for making a portability election and having that election treated as timely even though the statutory deadline may have passed. The authors suggest that once the estate tax exemption of a first spouse to die has been preserved under Rev. Proc. 2014-18, an effective estate plan for the surviving spouse may include creating and funding a lifetime trust structured as a grantor trust.

April 11, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0)

Bank: Historical Perspective on the Corporate Interest Deduction

Steven A. Bank (UCLA), Historical Perspective on the Corporate Interest Deduction, 18 Chapman L. Rev. ___ (2014):

One of the so-called “pillars of sand” in the American business tax structure is the differential treatment of debt and equity. Corporations may deduct interest payments on their debt, but may not deduct dividend payments on their equity. This “ancient and pernicious” feature is criticized because it distorts corporate financing choices and inevitably leads to line drawing problems as the government engages in a futile chase to catch up with the latest financial innovation. Both the Obama administration and new Senate Finance Committee Chairman Ron Wyden have proposed capping the deductibility of corporate interest to mitigate these concerns. This has led commentators to come to the defense of the full corporate interest deduction, relying in part on a historical justification based on the origins of the corporate income tax as a proxy for reaching shareholder income. According to this argument, an entity-level tax was necessary to reach income that might be distributed as a dividend, since it could otherwise be avoided by deferring the dividend, but an entity-level tax was not necessary to reach income that might be paid out as interest, since interest payments were fixed and regular and non-deferrable. Therefore, interest payments were made deductible, but dividend payments were not.

This Essay, prepared in connection with a Chapman Law Review symposium on Business Tax Reform, contends that although there may be appropriate arguments in favor of maintaining a full corporate interest deduction, the historical premise for the origins of the corporate income tax system is not one of them. Corporate interest was deductible and dividend payments were not both in 1894, when deferral was not a concern because corporations routinely distributed all of their profits each year, and in 1909, when there was no individual income tax and therefore no tax incentive to retain earnings.

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April 11, 2014 in Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 337

CNN:  Should Lois Lerner Be Held In Contempt?:

CNN Crossfire

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April 11, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Wiedenbeck: Recovering the Tax Shelter Limitation Aspect of ERISA

Peter J. Wiedenbeck (Washington University), 'Ninety-Five Percent of Them Will Not Be Missed': Recovering the Tax Shelter Limitation Aspect of ERISA, 6 Drexel L. Rev. ___ (2014):

ERISA is justly hailed as a paramount achievement in labor and social welfare legislation. The worker-protective elements of ERISA get most of the attention. Yet Congress also emphasized that employee benefit plans “substantially affect the revenue of the United States because they are afforded preferential Federal tax treatment” which justified a coordinate declaration of policy, “to protect...the Federal taxing power”. ERISA § 2(a), (c), 29 U.S.C. § 1001(a), (c). The tax-subsidized but largely unregulated regime that preceded ERISA facilitated widespread tax abuse. Reducing wasted revenue by focusing preferential tax treatment on plans providing retirement savings to a broad cross-section of the workforce — not just to the business owners — is the often-overlooked dual objective of ERISA. This article seeks to recover the tax shelter limitation aspect of ERISA. Part II briefly explains the origins of ERISA’s tax controls. Part III surveys ERISA’s accomplishments and limitations in suppressing pension tax shelters. Part IV describes later momentous developments to which ERISA pointed the way.

April 11, 2014 in Scholarship, Tax | Permalink | Comments (0)

Tax Increment Financing Districts and Taxable Properties

Randall K. Johnson, How Tax Increment Financing (TIF) Districts Correlate With Taxable Properties, 34 N. Ill. U. L. Rev. 39 (2013):

This article deals with Tax Increment Financing (TIF), which is a popular economic development tool. TIF borrows against future tax revenues to subsidize current development projects. In Illinois, this economic development tool is justified by its promise to expand the local tax base: by increasing tax revenues, increasing the number of tax payers or increasing the number of taxable properties in the area. However, it is not clear that TIF delivers on its promise. A new dataset, which is introduced in this article, helps to clarify the issue. It does so by providing information about the number of TIF Districts in suburban Cook County, Illinois, the number of taxable properties therein and the nature of the relationship between these variables. If these variables move together, which would indicate that TIF Districts positively correlate with taxable properties, this article will find that TIF delivers on its promise.

April 11, 2014 in Scholarship, Tax | Permalink | Comments (0)

Thursday, April 10, 2014

ABA Releases 'Bleak' Jobs Data for 2013 Law School Grads

ABA Logo 2Press Release, ABA Releases Class of 2013 Law Graduate Employment Data:

The ABA Section of Legal Education and Admissions to the Bar today released data on law graduate employment outcomes for the class of 2013. The data covers the employment status of the 2013 graduates of ABA-approved law schools as of Feb. 15, 2014, approximately nine months after spring 2013 graduation.

Law schools reported that 57% of graduates of the class of 2013 were employed in long-term, full-time positions where bar passage was required, compared with 56.2% for the class of 2012. In addition, 10.1% of graduates of the class of 2013 were employed in long-term, full-time positions where holding a J.D. provides an advantage in obtaining or performing the job, compared with 9.5% for the class of 2012.

Schools reported outcomes for 97.7% of their 2013 graduates. The size of the 2013 graduating class was the largest ever at 46,776, slightly larger than the 2012 class of 46,364. The data show both more jobs and a slightly higher percentage of graduates obtaining jobs in which a J.D. was required or considered relevant.

The ABA released this chart with aggregate data breakdowns and comparisons to the previous year, along with definitions of the various categories:

ABA Chart_Page_1

The ABA also released individual pdfs for each of the ABA-approved law schools, as well as a spreadsheet with all of the data for each of the schools.

Law School Transparency, New Law School Jobs Data Indicate Flat Entry-Level Legal Market:

The national full-time, long-term legal rate is 57.0%.

  • By definition these jobs:
    • require bar passage or are judicial clerkships; and
    • require 35+ hours per week and have an expected duration of at least one year.
  • At 64 law schools (31.8%), 50% of graduates or less had these legal jobs.
    • 33 schools (16.4%) had 40% or less;
    • 13 schools (6.5%) had 33% or less.
  • 103 schools (51.2%) exceeded the national rate of 57.0%.
    • 51 schools (25.4%) had 66% or more;
    • 21 schools (10.4%) had 75% or more;
    • 5 schools (2.5%) had 90% or more.

The national full-time, long-term legal rate, excluding jobs funded by law schools, is 55.3%.

  • The richest schools were able to hire their struggling graduates full time and long term; only 18 schools (9.0%) paid 5.0% or more of their graduates for long-term, full-time jobs that required bar passage.
    • 50% of these schools (9) were in the top 20 on the full-time, long-term rate without the benefit of the school-funded jobs; including school-funded jobs in the rate puts 67% of those schools (12) in the top 20.
    • Excluding school-funded jobs from the full-time, long-term legal rate caused all 5 schools over 90% to drop below that threshold.
  • Although the absolute number of full-time, long-term legal jobs funded by schools was relatively small (775, 2.0% of all employed graduates), there were 50% more of these jobs this year compared to last year.

Law School Transparency also released individual profiles of each law school, as well as sortable rankings for all law schools by various categories, including its "employment score" (full-time, long-term, bar passage-required jobs, excluding self-employed solo practitioners).

Matt Leichter ranks all 201 law schools by full-time, long-term, bar passage-required jobs, excluding law school-funded jobs.  Here are the Top 50, along with each school's U.S. News Ranking:

Percent Employed Full-Time/Long-Term Bar Passage-Required Jobs (Excluding Law-School-Funded Jobs)
 Law School (US News Rank)20122013Change
1 COLUMBIA (4) 85.3% 88.3% 3.0%
2 CHICAGO (4) 87.0% 86.5% -0.5%
3 NEW YORK UNIVERSITY (6) 79.0% 86.2% 7.2%
4 PENNSYLVANIA (7) 91.9% 85.7% -6.1%
5 DUKE (10) 84.9% 85.1% 0.2%
6 STANFORD (3) 89.0% 85.1% -3.9%
7 HARVARD (2) 84.6% 84.9% 0.4%
8 CORNELL (13) 85.3% 81.3% -3.9%
9 MICHIGAN (10) 81.7% 81.2% -0.5%
10 VIRGINIA (8) 79.7% 79.7% 0.0%
11 UC-BERKELEY (9) 85.9% 78.4% -7.5%
12 VANDERBILT (16) 71.4% 78.2% 6.7%
13 NORTHWESTERN (12) 75.9% 77.5% 1.5%
14 IOWA (27) 71.4% 76.3% 5.0%
15 TEXAS (15) 75.3% 75.1% -0.2%
16 KENTUCKY (58) 74.1% 74.4% 0.3%
17 YALE (1) 77.0% 74.4% -2.6%
18 NEW MEXICO (72) 67.2% 73.7% 6.5%
19 GEORGETOWN (13) 66.8% 72.4% 5.6%
20 SOUTHERN ILLINOIS (Tier 2) 52.3% 72.1% 19.7%
21 ALABAMA (23) 77.3% 71.7% -5.6%
22 SMU (42) 75.1% 70.9% -4.2%
23 NOTRE DAME (26) 65.3% 70.7% 5.3%
24 BAYLOR (51) 67.1% 70.5% 3.4%
25 FLORIDA STATE (45) 66.4% 69.6% 3.2%
26 NEW HAMPSHIRE (93) 60.9% 69.2% 8.3%
27 MONTANA (121) 61.0% 69.1% 8.2%
28 SETON HALL (68) 65.8% 68.9% 3.1%
29 GEORGIA (29) 69.4% 68.4% -1.1%
30 MINNESOTA (20) 64.3% 68.2% 3.9%
31 SOUTH CAROLINA (93) 70.4% 68.2% -2.2%
32 ARKANSAS, FAYETTEVILLE (61) 70.5% 68.2% -2.3%
33 NORTH CAROLINA (31) 67.6% 68.1% 0.6%
34 UNIVERSITY OF WASHINGTON (24) 68.0% 67.8% -0.2%
35 LSU (72) 76.7% 67.4% -9.3%
36 WYOMING (129) 56.0% 67.1% 11.1%
37 COLORADO (43) 51.4% 67.0% 15.6%
38 SOUTH TEXAS (146) 71.4% 67.0% -4.4%
39 OHIO NORTHERN (Tier 2) 59.4% 66.7% 7.3%
40 UCLA (16) 70.0% 66.6% -3.4%
41 OKLAHOMA CITY (Tier 2) 53.6% 66.5% 12.8%
42 FLORIDA (49) 56.8% 66.4% 9.6%
43 OKLAHOMA (58) 66.5% 66.3% -0.2%
44 NEBRASKA (54) 65.6% 66.1% 0.5%
45 WASHINGTON UNIVERSITY (18) 67.0% 66.0% -1.0%
46 MERCER (104) 72.5% 65.6% -6.9%
47 UC-DAVIS (36) 60.9% 65.3% 4.4%
48 TENNESSEE (72) 65.2% 65.3% 0.1%
49 LOUISVILLE (87) 66.9% 64.8% -2.1%
50 BYU (36) 63.3% 64.6% 1.4%

Seventeen schools ranked in the Top 50 by U.S. News are ranked outside the Top 50 for full-time, long-term, bar passage-required jobs, excluding law school-funded jobs:

Employment Rank

Law School

US News Rank

51

Indiana-Bloomington

29

56

Boston College

36

60

Utah

49

61

Fordham

36

62

George Washington

20

63

Emory

19

73

Arizona State

31

76

Boston University

27

80

USC

20

81

Ohio State

31

84

Wisconsin

31

94

Arizona

40

95

Wake Forest

31

100

Washington & Lee

43

102

William & Mary

24

125

Tulane

46

144

Maryland

46

Press and blogosphere coverage:

Update

April 10, 2014 in Law School Rankings, Legal Education | Permalink | Comments (12)

Blank Presents Reconsidering Corporate Tax Privacy at Harvard

BlankJoshua D. Blank (NYU) presented Reconsidering Corporate Tax Privacy, 11 N.Y.U. J. L. & Bus. ___ (2014), at Harvard yesterday as part of its Current Issues in Tax Law, Policy, and Practice Seminar hosted by Daniel Halperin and Stephen Shay:

For over a century, politicians, government officials and scholars in the United States have debated whether corporate tax returns, which are currently subject to broad tax privacy rules, should be made publicly accessible. Throughout this age-old debate, participants have speculated about how corporate managers and the IRS might behave differently if they knew that the public could observe corporations’ tax returns and how investors and the general public would respond if they had access to this information. There is, however, another, unexplored perspective: how could seeing other corporations’ tax returns affect how corporate managers engage in tax planning and tax return preparation for their own corporations?

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April 10, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

New Yorker: A Four-Decade Tax War

The New Yorker:  A Four-Decade Tax War, by Jeffrey Frank:

New YorkerThe nearness of April 15th is enough to remind us of the words of Jimmy Carter, who, when he accepted the Democratic Party’s nomination for President, in 1976, said, “It is time for a complete overhaul of our income-tax system … It is a disgrace to the human race.” Perhaps that was a bit hyperbolic in a world with so many people and events in the running to represent disgraces to humanity. But, in spirit, Carter was not wrong. The tax system is disgraceful, and what amazes is that, despite wide agreement on that point, and despite so many good intentions, so little has been done to fix it.

The problem begins with its innate unfairness, which can’t be separated from a tax code that is so complex and illogical that it’s routine to hire professionals simply to interpret and fill out basic forms. Sometimes, the professionals need to consult more professionals—more accountants and lawyers, or a team of them. That’s not restricted to any income group; if you’re renting out a spare room to help pay the mortgage, you’ve got forms to fill out and arithmetic to do, and very likely some explaining to do, too. We’re so used to this that, when April 15th (or its requested extension) arrives, it barely registers beyond the time-consuming, receipt-gathering, costly, baffling, headache-inducing inconvenience of it all.

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April 10, 2014 in Tax | Permalink | Comments (2)

Call for Papers: McGill Symposium on Tax Justice and Human Rights

McGillMcGill Faculty of Law, Call for Papers:  Tax Justice and Human Rights Research Collaboration Symposium:

We invite paper proposals for a Tax Justice and Human Rights Research Collaboration Symposium, to be held at the McGill Faculty of Law, Montreal, Quebec, from Wednesday to Friday, 18-20 June, 2014. 

The symposium will explore the fundamental connections between taxation and human rights by providing a forum for collaboration among emerging scholars, established academics, civil society organization representatives, tax justice advocacy groups, tax policy makers, and researchers from around the world. The symposium seeks especially to bring developing-world perspectives into the discourse and to foster scholarly work for dissemination both within and beyond the academic setting.

The plurality of experience, in terms of training, background, country of origin, and area of expertise, will ensure that discussions and activities at the conference will have real-world impact. Indeed, there is a need within the tax-policy world for more cross-pollination between academic researchers and on-the-ground decision-makers. The connections and networking that we envision will take place at this conference should allow for meaningful discussions for years to come.

Paper proposals must be between 300-500 words in length and should be accompanied by a short résumé.

Please submit your proposal to the conference convener Professor Allison Christians, at [email protected]

Deadline for submissions: 30 April 2014. Successful applicants will be notified in early May 2014.

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April 10, 2014 in Conferences, Scholarship, Tax | Permalink | Comments (0)

Critiquing the 'Gladiator Ethos' of Student-Edited Law Reviews

GladiatorEvelyn A. Grosenick (Public Defender, Nevada), In Defense of the Law Review, 45 McGeorge L. Rev. 305 (2013) (a response to Megan S. Knize (Editor-in-Chief, UC Davis Law Review, 2007-08), The Pen Is Mightier: Rethinking the "Gladiator" Ethos of Student-Edited Law Reviews, 44 McGeorge L. Rev. 309 (2013)):

I recognize that experiences vary greatly among law reviews and individuals. Despite individual differences among law review cultures, the need to publish issues influences the definition of success on all law reviews, which creates a common experience in some respects. Furthermore, this need to publish differentiates the definition of success in the law review context from the definition of success in the legal field and legal education. The main weakness of the gladiator model as an analytical tool for criticizing the law review is that it fails to take into account the full definition of success on the law review. Whereas the definition of success as winning drives the gladiator culture at law schools under Professor Sturm’s gladiator theory, the definition of success on the law review also includes producing a publication, which requires the members to work as a team. Publication cannot be accomplished without many of the aspects of the law review that Knize criticizes. In addition, the publication requirement encourages teamwork and creates an environment that celebrates prioritizing the needs of the team over the desires of the individual.

I am not arguing that the law review as an institution is perfect, nor do I believe that it is insulated from gender inequality. Rather, I am suggesting in response to Knize’s article that the necessity for teamwork on the law review counteracts the potential effect of the gladiator ethos and makes the law review more female-friendly than the typical law school classroom. Further, the hierarchical structure, rules, and deadlines serve essential gender-neutral purposes on law review and beyond.

April 10, 2014 in Scholarship, Tax | Permalink | Comments (0)

Ventry: The Case for Tax Whistleblowers in the States

Dennis J. Ventry, Jr. (UC-Davis), Not Just Whistling Dixie: The Case for Tax Whistleblowers in the States, 59 Vill. L. Rev. ___ (2014):

This Article examines the successes and failures of current tax whistleblower regimes, with particular emphasis on the states. It considers and then refutes several popular arguments against permitting whistleblowers to submit tax claims, under either a state’s False Claims Act (FCA) or standalone statute, including: (i) whistleblower statutes have historically been used to uncover and prosecute fraudulent behavior, not mere noncompliance with the law; (ii) the “knowing” standard of liability under FCAs creates new liability on taxpayers in jurisdictions permitting false claims pertaining to tax; and (iii) tax law is more complex and uncertain than other areas of the law and therefore off limits to whistleblower actions.

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April 10, 2014 | Permalink | Comments (0)

Oei: The Uneasy Case Against Tax Lien Subordination

Shu-Yi Oei (Tulane), The Uneasy Case Against Tax Lien Subordination, 11 Pitt. Tax Rev. ___ (2014):

I.R.C. § 6323, which governs how the federal tax lien ranks against the interests of the taxpayer’s other creditors, subordinates the tax lien to the claims of other creditors in various ways. Tax lien subordination is commonly justified on the grounds that it enhances taxpayer asset value, facilitates commercial transactions, and reduces monitoring costs for private creditors. This short symposium essay argues, however, that these benefits may be illusory. Tax lien subordination may, in fact, be unnecessarily costly and distortive and may lead to unfair distributive results. This essay suggests that the tax lien priority scheme might be made less costly by reducing its multiple levels of subordination. This could be accomplished in two ways: First, by reducing the magnitude or number of the superpriorities and other prioritized interests; and second, by eliminating the priority of the four horsemen over the un-noticed federal tax lien, or, alternatively, by moving away from a system of pure public notice and toward a semi-private inquiry-based system.

April 10, 2014 in Scholarship, Tax | Permalink | Comments (0)

Shanske: Revitalizing Local Political Economy Through Modernizing the Property Tax

Darien Shanske (UC-Davis), Revitalizing Local Political Economy Through Modernizing the Property Tax, 68 Tax L. Rev. ___ (2014):

As the Great Recession dramatically illustrated, state and local governments need a more stable revenue source. Accordingly, states and localities as diverse as Texas and San Francisco, are experimenting with new kinds of taxes. However, there has been essentially no experimentation with the oldest and most traditional local tax, namely the tax on real property.

This blindness to the property tax is unfortunate for many reasons, including that the property tax is both relatively efficient and stable compared to the other taxes available to states and localities. Of course, it is possible that the property tax has been ignored because, despite its merits, it has structural weaknesses that cannot be reformed. For instance, property tax liability is based on the value of the property and not on the income of the owner, which means that property taxes can impose great burdens on taxpayers on a fixed income. Furthermore, property taxes are typically collected once or twice a year, which imposes a significant obligation on taxpayers to budget correctly.

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April 10, 2014 in Scholarship, Tax | Permalink | Comments (0)

Templin: The Politics of Social Security Tax Reform

Benjamin A. Templin (Thomas Jefferson), Social Security Reform: The Politics of the Payroll Tax, 32 Quinnipiac L. Rev. 1 (2013):

This Article examines the principal reform proposals that would increase tax revenue for the Social Security trust fund--weighing the pros and cons of each. [FN13] The Article also considers the prospects for political agreement on a reform proposal given the past efforts and the looming crisis. Part I of the Article recounts the latest data on insolvency projections and discusses the methods by which the Office of the Chief Actuary measures the effect of proposed reforms. Part II provides an overview of the payroll tax and benefit calculations. The factors used in calculating both tax and benefits are key components used in many reform proposals. The Article groups tax reform proposals in two types: (1) proposals that increase the tax rate, which is the subject of Part III; and (2) proposals that increase the maximum taxable income, which is discussed in Part IV. Part V examines the political realities of reform proposals and suggests ways in which political bargaining can be structured to maximize the chances of success.

April 10, 2014 in Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 336

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April 10, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Wednesday, April 9, 2014

Rostain Presents Lawyers, Accountants, and the Tax Shelter Crisis Today at Duke

Tanina Rostain (Georgetown) presents Confidence Games: Lawyers, Accountants, and the Tax Shelter Crisis (MIT Press, 2014) (with Milton C. Regan, Jr. (Georgetown)) at Duke today as part of its Tax Policy Seminar hosted by Lawrence Zelenak:

ConfidenceFor ten boom-powered years at the turn of the twenty-first century, some of America’s most prominent law and accounting firms created and marketed products that enabled the very rich—including newly minted dot-com millionaires—to avoid paying their fair share of taxes by claiming benefits not recognized by law. These abusive domestic tax shelters bore such exotic names as BOSS, BLIPS, and COBRA and were developed by such prestigious firms as KPMG and Ernst & Young. They brought in hundreds of millions of dollars in fees from clients and bilked the U.S. Treasury of billions in revenues before the IRS and Justice Department stepped in with civil penalties and criminal prosecutions. In Confidence Games, Tanina Rostain and Milton Regan describe the rise and fall of the tax shelter industry during this period, offering a riveting account of the most serious episode of professional misconduct in the history of the American bar.

Rostain and Regan describe a beleaguered IRS preoccupied by attacks from antitax and antigovernment politicians; heightened competition for professional services; the relaxation of tax practitioner norms against aggressive advice; and the creation of complex financial instruments that made abusive shelters harder to detect. By 2004, the tax shelter boom was over, leaving failed firms, disgraced professionals, and prison sentences in its wake. Rostain and Regan’s cautionary tale remains highly relevant today, as lawyers and accountants continue to face intense competitive pressure and regulators still struggle to keep pace with accelerating financial risk and innovation.

April 9, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Wells Presents Tax Base Erosion and Section 482 at Northwestern

WellsBret Wells (Houston) presented Tax Base Erosion: Reformation of Section 482's Arm’s Length Standard, 15 Fla. Tax Rev. ___ (2014), at Northwestern last week as part of its Tax Colloquium Series hosted by by Herbert Beller, Charlotte CraneDavid Cameron, Philip Postlewaite, Jeffrey Sheffield, and Robert Wootton:

The United States has repeatedly attempted to stop tax base erosion for almost the entire post-World War I era, and yet the same problems exist today. The need for fundamental tax reform is front-page material in the major newspapers with the US transfer pricing rules and US multinationals portrayed as public enemy #1. This year, the OECD issued a report entitled “Addressing Base Erosion and Profit Shifting” and last month it issued a “Action Plan” for how it plans to proceed to address base erosion and profit-shifting. In a competing fashion, several important developing countries have initiated their own pact to develop cooperative strategies on these issues outside of the framework of the OECD and UN. It is fair to say that a solution to the base erosion and profit-shifting practices of multinational corporations is the “holy grail” of international tax policy.

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April 9, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (1)

Harvey Presents FATCA and the Taxation of U.S. Citizens Living Abroad Today at Penn

HarveyJ. Richard "Dick" Harvey, Jr. (Villanova) presents Offshore Accounts: Insider's Summary of FATCA and Its Potential Future, 57 Vill. L. Rev. 472 (2012), and Worldwide Taxation of U.S. Citizens Living Abroad: Impact of FATCA and Two Proposals, 5 Geo. Mason J. Int'l Comm. L. ___ (2013), at Pennsylvania today as part of its Center for Tax Law & Policy Seminar Series hosted by Michael Knoll, Chris Sanchirico, and Reed Shuldiner:

When FATCA was unilaterally enacted in March 2010 it was far from clear whether it would ultimately be successful. The major issue was whether the US would need multilateral action in order for FATCA to be a success. Currently the US has signed 25 intergovernmental agreements with many more in the final stages of negotiation. When coupled with the OECD's recent issuance of a Common Reporting Standard, it appears that FATCA or some version is here to stay. However, there will be growing pains, and some of those pains could be significant.

April 9, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Wealthy New Yorkers Face 164% Estate Tax Rate

CNBC, New York Rich Face Tax Surprise When They Die:

If you're a New York multimillionaire, you now have another incentive to stay alive.

A change this month in New York's estate tax, which was billed as tax relief for the wealthy, contains a hidden wrinkle that could leave some multimillionaires with a much bigger surprise tax upon their death. Certain estates could even wind up with a tax rate of 164 percent on portions of their estates, according to one tax expert.

April 9, 2014 in Tax | Permalink | Comments (6)

Testimony in Yesterday's Congressional Tax Hearings

Capitol HillSenate Budget Committee, Supporting Broad-Based Economic Growth and Fiscal Responsibility through a Fairer Tax Code:

  • John L. Buckley (Former Chief Counsel, House Ways & Means Committee and former Chief of Staff, Joint Committee on Taxation)
  • Jane Gravelle (Senior Specialist in Economic Policy, Congressional Research Service)
  • Diana Furchtgott-Roth (Senior Fellow, Manhattan Institute for Policy Research)

Senate Finance Committee, Protecting Taxpayers from Incompetent and Unethical Return Preparer: (detailed coverage here):

House Ways & Means Committee, The Benefits of Permanent Tax Policy for America’s Job Creators:

April 9, 2014 in Congressional News, Tax | Permalink | Comments (0)

IRS Computers Are Still Running Windows XP, Confidential Taxpayer Data Is At Risk

Washington Post:  A Week Before Tax Day, IRS Misses Crucial Windows XP Deadline:

XPMicrosoft on Tuesday stopped providing free support and security updates for Windows XP. The long-planned expiration of the popular operating systems has sent millions of users scrambling to upgrade their computer systems.

Among who still that need to make the transition is the Internal Revenue Service, which has yet to complete its migration away from Windows XP, less than a week ahead of its own important deadline: Tax Day.

The agency is "struggling" to find $30 million dollars to complete its move to Windows 7, according to Rep. Ander Crenshaw (R. - Fla.), chairman of the financial services and general government subcommittee. During a hearing on IRS budget Monday, Crenshaw questioned why the agency had not prioritized the move "even though Microsoft announced in 2008 that it would stop supporting Windows XP past 2014."

IRS Commissioner John Koskinen defended the agency's efforts, noting that it has been operating amid budget uncertainty for years. The migration to Windows 7 was just one of nearly $300 million dollars worth of information technology projects that has not been completed due to funding shortfalls, he said.

"You're exactly right," Koskinen said of the timing. "It's been some time where people knew Windows XP was going to disappear." But testifying just a day before Microsoft ended support for the operating system, he conceded the agency was still trying to finish up the transition. "So we are very concerned that if we don't complete that work, we're going to have an unstable environment in terms -- in terms of security."

The GAO yesterday released IRS Needs to Address Control Weaknesses That Place Financial and Taxpayer Data at Risk (GAO-14-405):

GAOThe IRS continued to make progress in addressing information security control weaknesses and improving its internal control over financial reporting; however, weaknesses remain that could affect the confidentiality, integrity, and availability of financial and sensitive taxpayer data. During fiscal year 2013, IRS management devoted attention and resources to addressing information security controls, and resolved a number of the information security control deficiencies that were previously reported by GAO. However, significant risks remained. Specifically, the agency had not always (1) installed appropriate patches on all databases and servers to protect against known vulnerabilities, (2) sufficiently monitored database and mainframe controls, or (3) appropriately restricted access to its mainframe environment. In addition, IRS had allowed individuals to make changes to mainframe data processing without requiring them to follow established change control procedures to ensure changes were authorized, and did not configure all applications to use strong encryption for authentication, increasing the potential for unauthorized access.

An underlying reason for these weaknesses is that IRS has not effectively implemented portions of its information security program. The agency has established a comprehensive framework for the program, and continued to improve its controls; however, components of the program did not always function as intended. For example, IRS's testing procedures over financial reporting systems were not always thorough in that its testing methodology did not always determine whether required controls were operating effectively. In addition, IRS had not updated key mainframe policies and procedures to address issues such as users accessing files used by one processing environment from a different environment. Further, IRS did not include sufficient detail in its authorization procedures to ensure that access to systems was appropriate.

Until IRS takes additional steps to (1) more effectively implement its testing and monitoring capabilities, (2) ensure that policies and procedures are updated, and (3) address unresolved and newly identified control deficiencies, its financial and taxpayer data will remain vulnerable to inappropriate and undetected use, modification, or disclosure. These deficiencies, including shortcomings in the information security program, were the basis of our determination that IRS had a significant deficiency in its internal control over its financial reporting systems for fiscal year 2013.

April 9, 2014 in IRS News, Tax | Permalink | Comments (0)

NY Times: Elite College Acceptance Rate Hits All-Time Low

New York Times:  Best, Brightest and Rejected: Elite Colleges Turn Away Up to 95%:

Enrollment at American colleges is sliding, but competition for spots at top universities is more cutthroat and anxiety-inducing than ever. In the just-completed admissions season, Stanford University accepted only 5 percent of applicants, a new low among the most prestigious schools, with the odds nearly as bad at its elite rivals.

Deluged by more applications than ever, the most selective colleges are, inevitably, rejecting a vast majority, including legions of students they once would have accepted. Admissions directors at these institutions say that most of the students they turn down are such strong candidates that many are indistinguishable from those who get in. ...

Stanford received 42,167 applications for the class of 2018 and sent 2,138 acceptance notices, for a first-year class that, ultimately, will number about 1,700.

The University of California, Los Angeles, the national leader in applications, had more than 86,000 requests — twice as many as in 2005 — for space in a first-year class of about 6,000, and it also received 19,000 applications to transfer from other colleges and universities. This year, for the first time, the admission rate for first-year applicants at UCLA and the University of California, Berkeley, could drop below 20 percent. ...

This was the second year in a row that Stanford had the worst odds of admission among top colleges, a title that in previous years was usually claimed by Harvard. This year, by the April 1 deadline for most colleges to send admission notices, Harvard and Yale had accepted about 6 percent of applicants, Columbia and Princeton about 7 percent, and the Massachusetts Institute of Technology and the University of Chicago about 8 percent.

Several universities, including Stanford, Duke, Northwestern, Cornell and the University of Pennsylvania, had admission rates this year that were less than half of those from a decade ago. The University of Chicago’s rate plummeted to a little over 8 percent, from more than 40 percent.

The most competitive small colleges draw comparably accomplished applicants, but far fewer of them relative to their size, so their admission rates are higher. Even so, the acceptance rates at Pomona, Amherst, Harvey Mudd, Bowdoin, Claremont McKenna, Swarthmore, Middlebury, Williams and others were between 10 and 20 percent this year.

April 9, 2014 in Legal Education | Permalink | Comments (1)

Great April Fool's Prank on Professor

Economics Professor Stephen Barrows (Aquinas College) has a strict cell phone policy:  if a student's phone rings in class, the student must answer on the speaker.  Check out what happened in his class on April 1:

April 9, 2014 in Legal Education, Tax | Permalink | Comments (0)

IRS Offer in Compromise Acceptance Rate at All-Time High in 2013

The IRS Scandal, Day 335

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April 9, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Tuesday, April 8, 2014

Tahk Presents The Tax War on Poverty Today at NYU

TahkSusannah Camic Tahk (Wisconsin) presents The Tax War on Poverty at NYU today as part of its Tax Policy Colloquium Series hosted by Daniel Shaviro and Alan Auerbach:

In recent years, the war on poverty has moved in large part into the tax code. Scholarship has started to note that the tax laws, which once exacerbated the problem of poverty, have become increasingly powerful tools that the federal government uses to fight against it. Yet questions remain about how this new tax war on poverty works, how it is different from the decades of non-tax anti-poverty policy and how it could improve. To answer these questions, this Article looks comprehensively at the provisions that make up the new tax war on poverty. First, this Article examines each major piece of the tax war on poverty. The Article looks at its mechanics of each, its political history and its effectiveness at addressing poverty. Second, this Article analyzes the tax war on poverty as a whole, identifying commonalities across its different provisions and highlighting its distinctive features. Third, this Article proposes ways that the tax war on poverty could be more effective. In particular, this Article examines how tax lawmakers and tax lawyers could approach this task. In so doing, this Article conceptualizes tax law as the new poverty law and proposes a growing role for public-interest tax lawyers.

April 8, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (1)

The Life of the Law Podcast: People and their Taxes


Life of the Law LogoThe Life of the Law Podcast:  People and their Taxes:

One of Life of the Law’s new advisors, Ajay Mehrotra, is tax historian and associate dean at the University of Indiana’s Maurer School of Law. Professor Mehrotra invited some of his fellow scholars to talk about taxation and citizenship. You’ll hear him speaking with Duke University law professor Lawrence Zelenak; Molly Michelmore, an associate professor of history at Washington and Lee University; and Beth Pearson, a PhD candidate at the University of California Berkeley who’s studying the evolution of state tax laws.

April 8, 2014 in Tax | Permalink | Comments (0)

Toder & Viard: A Call for Structural Reform of the U.S. Corporate Income Tax

Eric Toder (Tax Policy Center) & Alan D. Viard (American Enterprise Institute), Major Surgery Needed: A Call for Structural Reform of the U.S. Corporate Income Tax:

Corporate tax system flaws are amplified by the high US statutory tax rate. Here are two ways to fix it:

  1. Eliminate corporate income tax, but tax US shareholders at ordinary income tax rates on their dividends and accrued capital gains.
  2. Seek international agreement on allocating income of multinational corporations among countries to determine tax obligation.

April 8, 2014 in Scholarship, Tax, Think Tank Reports | Permalink | Comments (0)

Osofsky: Unwinding the Ceiling Rule

Leigh Osofsky (Miami), Unwinding the Ceiling Rule, 33 Va. Tax Rev. ___ (2014):

As is widely known, the so-called “ceiling rule,” which applies under the traditional method for section 704(c) allocations, can create the wrong tax result. Specifically, the ceiling rule can result in misallocations of income, gain, loss, and deduction to both a partner contributing property and to the noncontributing partners. Notwithstanding these predictable misallocations, the Treasury Department still permits application of the ceiling rule under section 704(c). This Article challenges longstanding assumptions regarding the operation of the ceiling rule in the context of section 704(c). Historically, Congress and partnership tax experts assumed that the ceiling rule is perfectly unwound on liquidation or sale of a partnership interest. This assumption still operates to some extent today. The assumption glosses over a significantly more complicated reality. This Article closely examines the history of section 704(c) and the interaction between the ceiling rule and the rules regarding sales and liquidations of partnership interests. Doing so reveals that when and to what extent the perfect unwinding assumption holds depends (perhaps to a surprising degree) on (1) a variety of relatively arbitrary facts regarding the assets held by the partnership on liquidation or sale, and (2) the unintended interactions of inordinately complicated partnership tax rules. In reaching this conclusion, this Article displays that the ceiling rule, which has always been part of the section 704(c) regime, is even worse than it is commonly thought to be.

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April 8, 2014 in Scholarship, Tax | Permalink | Comments (0)

Leff & Hackney: Tax Planning for Marijuana Dealers

Iowa Law Review LogoBenjamin M. Leff (American), Tax Planning for Marijuana Dealers, 99 Iowa L. Rev. 523 (2014):

In recent years, many states have legalized marijuana while the federal government continues to consider all marijuana sales and use illegal. But marijuana industry insiders consider not federal criminal law but federal tax law to be the biggest impediment to the development of a legitimate marijuana industry. State-sanctioned marijuana sellers are required to pay federal income taxes pursuant to § 280E, a formerly largely symbolic provision that Congress enacted to punish drug dealers, but which now could potentially drive legitimate marijuana sellers underground.

This paper proposes a tax strategy that enables state-sanctioned marijuana sellers to avoid the impact of § 280E by qualifying as a tax-exempt organization. The IRS has already stated that a marijuana seller cannot be exempt under § 501(c)(3) because the so-called “public policy doctrine” does not permit a charity to have purposes that are contrary to law. This paper proposes that a state-sanctioned marijuana seller could qualify as tax-exempt under § 501(c)(4), since the public policy doctrine only applies to charities, and § 501(c)(4) organizations are not charities. The organization would have to be operated to improve the social and economic conditions of a neighborhood blighted by crime or poverty, by providing job training, employment opportunities, and improved business conditions for commercial development in the neighborhood, just like many existing community economic development corporations that run businesses.

This novel argument is more than just a clever strategy – a “tax loophole” so to speak – to avoid the impact of § 280E. Rather, IRS recognition of tax-exempt status for marijuana sellers could actually provide a mechanism to resolve the federalism issues raised by the conflict between state and federal marijuana laws. A federal policy that incentivizes marijuana sellers to be non-profit, neighborhood-based organizations whose primary purpose is improving the neighborhood in effect ties federal approval to local support. By following this policy, the IRS would promote state and local policy harmonization by permitting community-based nonprofits to sell marijuana, but only when local community groups favored it. This would surely be better for the IRS than its current role as a lightning rod of the conflict between state and federal policy objectives.

Philip T. Hackney (LSU), No 'Fagin' School of Pickpockets Allowed -- A Response to Professor Leff on Tax Planning for Marijuana Dealers, 99 Iowa L. Rev. Bull. 25 (2014):

Professor Benjamin Leff argues in a forthcoming article entitled Tax Planning for Marijuana Dealers that a tax-exempt social welfare organization described in § 501(c)(4) may sell medical marijuana without putting its exempt status in jeopardy. He argues that (1) the “public policy” doctrine applicable to charitable organizations under § 501(c)(3) does not apply to social welfare organizations, and (2) a social welfare organization may consider “community” law and ignore federal law in considering whether its activity meets the idea of social welfare. I argue that Leff is wrong and that the public policy doctrine applicable to charitable organizations applies to social welfare organizations equally. Tax-exempt organizations derive exempt status primarily by supplying significant public benefits. Violating federal, state or local law causes public harm; thus, any tax-exempt organization, including a social welfare organization, may not violate established public policy as a substantial purpose. Additionally, the “community” requirement for social welfare organizations is to ensure the organization is dedicated to a public purpose rather than a private one. Violating any law, including federal, is more likely to ensure an organization is operating for a private rather than public purpose. Contrary to Leff’s claim therefore, this article argues that a social welfare organization may not sell medical marijuana and maintain its exempt status.

April 8, 2014 in Scholarship, Tax | Permalink | Comments (0)

Cain & Herzig: Notice 2014-19 and the Application of Windsor to Qualified Retirement Plans

Cain HerzigPatricia A. Cain (Santa Clara) and David Herzig (Valparaiso) have written op-eds for TaxProf Blog on Notice 2014-19, Application of the Windsor Decision and Rev. Rul. 2013-17 to Qualified Retirement Plans:

The purpose of this notice is to provide guidance on the application (including the retroactive application) of the decision in United States v. Windsor, 570 U.S. ___, 133 S. Ct. 2675 (2013), and the holdings of Rev. Rul. 2013-17, 2013-38 I.R.B. 201 (Sept. 16, 2013), to retirement plans qualified under section 401(a) of the Internal Revenue Code (Code).

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April 8, 2014 in IRS News, Tax | Permalink | Comments (0)

Muller: College Majors That Produce the Highest (and Lowest) LSATs and UGPAs

MajorDerek Muller (Pepperdine), The Best Prospective Law Students Read Homer:

Several years ago, Professor Michael Nieswiadomy (North Texas) released a paper (available on SSRN) [blogged here] on the LSAT scores of economics majors. I thought I'd make some inquiries with LSAC for some data on this subject to follow up.

I asked for all data of 2013 applicants and matriculants to law school. Applicants self-identified one of 142 majors; they could select more than one if they so desired. I obtained the median LSAT scores, and the median GPA scores, for these groups. ...

As you can see, the best prospective law students were the Classics majors. Even though there were just 190 of them, they achieved a 159.8 LSAT and a UGPA of 3.477--the highest in both categories. ... The chart below includes the comprehensive list of all majors with at least 150 applicants, sorted by LSAT score. Some very small majors (e.g., Art History, Music, and Policy Studies) scored quite well. ... Among those majors with at least 1000 takers, the top major was Philosophy, followed by Economics, History, English, and Political Science.

Here are the Top 10 and Bottom 10 college majors by LSAT and GPA (the full list of 46 majors is here).

Derek 1

***

Derek 2

April 8, 2014 in Legal Education | Permalink | Comments (6)

Johnston: How to Cheat on Your Taxes

Newsweek:  How to Cheat on Your Taxes, by David Cay Johnston (Syracuse):

There's never been a better time to cheat on your taxes. Or a better way.

As millions of Americans rush to file their tax returns on time, trying to be ever-so-careful in hopes of avoiding an audit or, far worse, prosecution, they will find it instructive, and infuriating, to learn about Jerry Curnutt.

Curnutt can show people how to cheat on their taxes and not get caught. His trick won't work if you are a wage earner, but those rich enough to invest in real estate partnerships have escaped paying billions of dollars in the past decade by using this technique.

Now Curnutt's mission in life, at age 76, is to get states and the IRS to go after these cheats. ...

[T]he tax-cheat ploy Curnutt uncovered is remarkably easy. On Form 1065, the one partnerships file, just leave Line 10 on Schedule K blank, or report a smaller figure than the real one.

Why does that one line go unnoticed when the IRS selects tax returns for audit? IRS software scans only for what it is told to look for. (Think of those Star Trek episodes in which the Enterprise scans a planet for life, detects none and then discovers life forms the scanners were not tuned to notice.)

This week, news broke that the IRS effectively fails to audit massive partnerships, like hedge funds and private equity funds, even though corporations of the same size are under constant IRS audit. A short video, "Tax Analysts Video Examines Audit-Proof Businesses," explains how partnerships escape audits.

Curnutt knows this because he is a tax detective. He retired from the Internal Revenue Service in 2000 as one of its top snoops, overseeing all investment partnerships. Using his desktop computer, Curnutt discovered a simple way to cheat that no one at the IRS had noticed. Call it Curnutt cheating.

For his brilliant sleuthing, the IRS gave Curnutt commendations and multiple cash awards, each for about $1,000. It sent him around the country to conduct 64 training sessions so IRS auditors could learn how to efficiently spot these cheats. He also trained state tax auditors from California, Indiana, New Jersey and New York.

But the IRS never put Curnutt's insights into practice and never cracked down on the cheaters, allowing them to escape paying tens of billions of dollars in federal and state taxes.

The odds for taxpayers overall, according to IRS data analyzed by Syracuse University's Transactional Records Access Clearinghouse for 2013 and 1993, per million taxpayers:

2013

1993

 

13

20

Recommended for Prosecution as Tax Cheat

6

11

Indicted

4

8

Convicted

3

4

Sentenced to Prison

0

0

Caught for “Curnutt Cheating” in Real Estate Partnerships

Tax Analysts:  Why It Matters That the IRS Has Trouble Auditing Partnerships, by Amy S. Elliott

April 8, 2014 in Tax | Permalink | Comments (1)

Bias, Retaliation Lawsuit by Former Profs Against Atlanta's John Marshall Law School Is Headed for Trial

John MarshallNational Law Journal:  Former Professors' Lawsuit Headed for Trial: Two Ousted Professors Accused Atlanta's John Marshall Law School of Discrimination and Retaliation, by Karen Sloan:

A racial discrimination and retaliation case brought against Atlanta’s John Marshall Law School by two former professors has survived a motion for summary judgment.

U.S. District Judge William Duffy Jr. on Monday ruled that the claims of breach of contract, bad faith, racial discrimination and retaliation could proceed. However, he wrote that his denial of summary judgment to John Marshall was “difficult and close.”

“The claims and factual content supporting them are just sufficient to survive,” Duffy wrote. “They were allowed largely because of the conflicting and inconsistent testimony, and other evidence offered by the defendant. In the end, while the claims are nominally viable, they ultimately will have to be evaluated by a jury.” ...

Pinder 2Plaintiffs Kamina Pinder, an African-American woman, and Scott Sigman, a white man, were informed by the law school in March 2011 that their yearlong teaching contracts would not be renewed. Neither were tenured. They filed suit in 2012.

Pinder claimed discrimination and retaliation because of her race and because she had aired her views that the law school had a history of giving minority women the least desirable teaching assignments and of discouraging them from seeking tenure.

Sigman alleged he was fired for raising concerns about unfair grading practices against white students and the administration’s handling of personnel matters. Both plaintiffs alleged the law school violated its internal policies in their dismissals.

Prior TaxProf Blog coverage:

April 8, 2014 in Legal Education | Permalink | Comments (2)

The IRS Scandal, Day 334

IRS Logo 2House Committee on Oversight and Government Reform, Debunking the Myth that the IRS Targeted Progressives: How the IRS and Congressional Democrats Misled America about Disparate Treatment (Apr. 7, 2014) (141 pages):

The Committee’s investigation demonstrates that the IRS engaged in disparate treatment of conservative-oriented tax-exempt applicants. Documents produced to the Committee show that initial applications transferred from Cincinnati to Washington were filed by Tea Party groups. Other documents and testimony show that the initial criteria used to identify and hold Tea Party applications captured conservative organizations. After the criteria were broadened in July 2012 to be cosmetically neutral, material provided to the Committee indicates that the IRS still intended to target only conservative applications.

The IRS’s independent watchdog, the Treasury Inspector General for Tax Administration (TIGTA), confirms that the IRS treated conservative applicants differently from liberal groups. The inspector general, J. Russell George, wrote that while TIGTA found indications that the IRS had improperly identified Tea Party groups, it “did not find evidence that the criteria [Democrats] identified, labeled ‘Progressives,’ were used by the IRS to select potential political cases during the 2010 to 2012 timeframe we audited.” He concluded that TIGTA “found no indication in any of these other materials that ‘Progressives’ was a term used to refer cases for scrutiny for political campaign intervention.”

An analysis performed by the House Committee on Ways and Means buttresses the Committee’s findings of disparate treatment. The Ways and Means Committee’s review of the confidential tax-exempt applications proves that the IRS systematically targeted conservative organizations. Although a small number of progressive and liberal groups were caught up in the application backlog, the Ways and Means Committee’s review shows that the backlog was 83 percent conservative and only 10 percent were liberal-oriented.9 Moreover, the IRS approved 70 percent of the liberal-leaning groups and only 45 percent of the conservative groups. The IRS approved every group with the word “progressive” in its name.

In addition, other publicly available information supports the analysis of the Ways and Means Committee. In September 2013, USA Today published an independent analysis of a list of about 160 applications in the IRS backlog. This analysis showed that 80 percent of the applications in the backlog were filed by conservative groups while less than seven percent were filed by liberal groups. A separate assessment from USA Today in May 2013 showed that for 27 months beginning in February 2010, the IRS did not approve a single tax-exempt application filed by a Tea Party group. During that same period, the IRS approved “perhaps dozens of applications from similar liberal and progressive groups.” ...

For months, the Administration and congressional Democrats have attempted to downplay the IRS’s misconduct. First, the Administration sought to minimize the fallout by preemptively acknowledging the misconduct in response to a planted question at an obscure Friday morning tax-law conference. When that strategy failed, the Administration shifted to blaming “rogue agents” and “line-level” employees for the targeting. When those assertions proved false, congressional Democrats baselessly attacked the character and integrity of the inspector general. Their attempt to allege bipartisan targeting is just another effort to distract from the fact that the Obama IRS systematically targeted and delayed conservative tax-exempt applicants.

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April 8, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Monday, April 7, 2014

Fleischer Presents Innovation, Equity Compensation, and the New Inequality Today at Pepperdine

Fleischer Vic (2013)Victor Fleischer (San Diego) presents Sweat Equity: Innovation, Equity Compensation, and the New Inequality at Pepperdine today as part of its Tax Policy Colloquium Series hosted by Paul Caron:

How people get paid—not just how much—explains the rising income inequality in the United States. Company founders, corporate executives, real estate developers, venture capitalists, and private equity fund managers often get paid in “sweat equity.” In exchange for labor, they receive equity in a venture largely financed with other people’s money. Globalization, technological change, and other factors have created economic conditions such that when companies are successful, those with sweat equity can receive unprecedented increases in income and wealth, and these gains are increasingly concentrated among a select few. For the rest of us, wages have stagnated.

The culture of equity-based pay has proven highly successful as a solution to the fundamental problem of entrepreneurial economics: how to get people with financial capital to share it with those who have the talent, motivation, and ideas. From the oil fields of Texas to the garages of Silicon Valley and the trading desks and boardrooms of Wall Street, sweat equity aligns the incentives of managers and investors. It is the engine of American innovation and economic growth.

But sweat equity is also rocket fuel for economic inequality. Economic gains increasingly flow to a lucky and talented elite, the one percent of the one percent, leaving everyone else behind. Our tax code aggravates the inequality problem, leaving sweat equity lightly taxed while taxes on wages have increased dramatically. The common recommendation of the political left—raise taxes on the rich—misses the target by focusing on ordinary income rather than sweat equity.

Addressing the problem of inequality will require finding fair methods of redistribution that do not disrupt the complex economic, legal, institutional and cultural infrastructure that forms the foundation for American innovation and entrepreneurship. Possibilities include redesigning the capital gains tax, adopting a progressive consumption tax, redesigning the estate tax, and increasing incentives for charitable giving. We must achieve enough redistribution to ensure some social mobility and some equality of opportunity, but not so much that the next generation of founders finds the risk and reward of entrepreneurship unattractive.

Update:  Post-presentation lunch:

Photo

April 7, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (1)

Gamage Presents Should Risk Adjustment Become the Heart of Obamacare? Today at Harvard

Gamage (2014)David Gamage (UC-Berkeley) presents The Evolution of Health Care Reform: Should Risk Adjustment Become the Heart of Obamacare? at Harvard today as part of its Health Law Policy, Biotechnology, and Bioethics Workshop Series:

This Essay explores how the regulatory framework of Obamacare might evolve over the coming years. The Essay analyzes the ways in which Obamacare’s risk-adjustment-related provisions are becoming increasingly central. This Essay further ponders whether an expanded approach to risk adjustment might be a better model for guiding further reforms to Obamacare’s framework, especially in light of political constraints. In particular, this Essay explains how an expanded approach to risk adjustment might replace the tax penalty of the individual mandate.

April 7, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (1)

Olson Presents Tax Politics v. Tax Policy Today at Minnesota

OlsonPamela F. Olson (PricewaterhouseCoopers LLP) presents Politics versus Policy at Minnesota today as part of its Perspectives in Taxation Lecture Series:

In the tax area, good policy and political reality are often at odds with one another. Such certainly seems to be the case today. Can the conflict between politics and policy be reconciled? What are the implications of the conflict between politics and policy for the enactment of sound tax and budget policy?

April 7, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Faculty Salaries Increased 2.2% in 2013-14

AAUP, Annual Report on the Economic Status of the Profession, 2013-14:

AAUPThe left side of table 1 provides the percentage change in average salary, which is a measure of the increase in the salary paid for a given faculty position rather than in the earnings of individual faculty members. The bottom row of the table indicates that the average salary for a full-time faculty member increased by 2.2 percent this year at those institutions that responded to the AAUP survey for the last two years. The table provides percentage change in the figures for the four upper faculty ranks at each type of institution surveyed and illustrates the variation among the different institutional categories and faculty ranks. As has been the pattern for a number of years, the increase at private-independent institutions overall was higher than that at public institutions, due almost entirely to the disparity in the salary change in doctoral universities for those two sectors. ...

The right side of table 1 presents a measure of changing salaries that is unique to the AAUP survey: the average change in salary paid to a continuing faculty member who has remained in his or her position at the same institution from the previous year. The percentage increases reflected in the table could be thought of as the “average raise” an individual faculty member received this year, and those figures include increases from all sources: promotions, merit raises, and across-the-board salary adjustments. In the aggregate table, all the figures are positive this year, meaning that salaries rose on average—but that is certainly not the case at every institution. The “bottom-line” overall average increase for continuing faculty members this year was 3.4 percent, and the pattern by type of institution was similar to that observed in average salaries. The continuing faculty figure is almost always higher than the overall increase in average salary, since the former includes only faculty members who have added a year of experience. The broader figures from the left side of the table reflect the continuous churning of faculty members through positions, as senior faculty members depart and are most often replaced by faculty members at lower salaries, keeping the overall averages down.

Table 1

Figure 1

Figure 2

Figure 3

April 7, 2014 in Legal Education | Permalink | Comments (0)

IRS Whistleblower Office Issues Annual Report to Congress

The Law Schools With the Highest (Yale, 81%) and Lowest (UC-Davis, 11%) Yields

U.S. News 2015U.S. News & World Report, 10 Law Schools Where Accepted Students Usually Enroll:

The number of students applying to law school continues to decline – according to a March report from the Law School Admission Council – but among those accepted, many students tend to favor enrolling at certain institutions.

The rates at the 10 schools with the highest yield rates ranged from 42 percent to 80.6 percent for fall 2013 first-year, full-time and part-time J.D. entering students. At these schools, an average of about 383 students were accepted and, on average, 52.3 percent of accepted students enrolled....

SchoolAccepted  
Enrolled   
Yield         
US News Rank
Yale 247 199 80.6% 1
Harvard 858 568 66.2% 2
BYU 217 139 64.1% 36
New Mexico 258 120 46.5% 72
Southern 487 224 46% RNP
Stanford 392 179 45.7% 3
UMKC 383 172 44.9% 104
North Dakota 189 83 43.9% 129
Indiana-Ind 533 227 42.6% 87
UNLV 269 113 42% 83

University of California—Davis had 11.2 percent of accepted students enroll, the lowest percentage of accepted students according to the survey data. Of the 10 schools where most accepted students did not enroll, the average yield was just 12.7 percent, and the average number of accepted students was about 1,298.

April 7, 2014 in Law School Rankings, Legal Education | Permalink | Comments (3)

ESPN 30 for 30: The Law School Gunner (by Notre Dame Law Students)

30 for 30ESPN 30 for 30: The Law School Gunner (by Notre Dame law students):

This short mockumentary takes a look at the mythos and realities of the law school gunner, a stock character in all law schools. A parody of the ESPN 30 for 30 series of films. Produced by students at Notre Dame Law School, and featuring members of the JD classes of 2014, 2015, and 2016. 

(Click on YouTube button on bottom right to view video directly on YouTube to avoid interruption caused by blog's refresh rate.)

April 7, 2014 in Legal Education | Permalink | Comments (0)

Retirement Accounts and the Hidden Law of Succession

Wall Street Journal:  When Your 401(k) Has a Bad Heir Day, by Jason Zweig:

Even where there is a will, there can be a won’t.

That is the hard lesson learned by the three adult children of a wealthy telemarketing executive who died suddenly last month. His will states that all his assets are to go to his children, according to Laura Mattia, a principal at Baron Financial Group, a financial-advisory firm in Fair Lawn, N.J., who was consulted after the executive’s death by his estate attorney.

However, much of his wealth was in his 401(k) retirement account, and the fate of those assets isn’t dictated by wills.

It is a little-understood situation: After a lifetime of saving, what ultimately happens to your individual retirement account, 401(k) and other retirement savings often hinges on what you scribbled down, decades earlier, as you filled out a form designating your beneficiaries.

If you haven’t updated that paperwork to reflect how your life has changed, you might not be able to leave your wealth to your heirs as you wish. Instead, you could bequeath them a bureaucratic nightmare.

The executive who died last month, Ms. Mattia says, should have asked his wife to sign a waiver and then named his children as the beneficiaries of his 401(k). Because he didn’t, his wife inherits it—although he married her only two months before he died. By neglecting to update his beneficiary form, the executive effectively disinherited his children.

No wonder Stewart Sterk and Melanie B. Leslie of the Benjamin N. Cardozo School of Law at Yeshiva University in New York call retirement accounts “substitute wills.” In a study they have just published on the problem [Accidental Inheritance: Retirement Accounts and the Hidden Law of Succession, 89 N.Y.U. L. Rev. 165 (2014)], the law professors point out that most Americans believe their retirement savings will be divided according to the instructions in their will—like their other assets. In fact, who inherits retirement money is usually determined by the language on beneficiary-designation forms that many people have long since forgotten or lost.

The assets at stake are staggering. Savers have amassed $5.9 trillion in 401(k) and other “defined contribution” plans, plus another $6.5 trillion in IRAs, according to the Investment Company Institute, a trade group. ...

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April 7, 2014 in Scholarship, Tax | Permalink | Comments (2)

The IRS Scandal, Day 333

Pinocchio_3Washington Post Fact Checker:  IRS Chief: No ‘Targeting’ of Tea Party Groups, Just ‘Inappropriate Criteria’:

The inspector general found inappropriate criteria were used to select organizations for further review — he did not refer to it as targeting.

Yes, inappropriate criteria were used. I don’t think I used the word target, but I do acknowledge that applications were delayed unnecessarily and for too long.”

I have never said there was targeting.

 – IRS Commissioner John Koskinen, congressional testimony before the House Oversight and Government Reform Committee, March 26, 2014

What’s in a phrase?

House Republicans who have investigated the IRS’s handling of applications of conservative groups’ seeking tax-exempt status have referred to the practice as “targeting.” So have news organizations, including The Washington Post.

This effort at spin control took an odd turn recently when, during a congressional hearing, IRS Commissioner John Koskinen denied that the Treasury inspector general had used the term “targeting.” At another point in the hearing, Koskinen said that he had “never” used the phrase either.

What did the IG say and when did he say it? ...

[W]hat happened when [Inspector General] George actually spoke before Congress about his report?  Here are two examples from his testimony on May 22, 2013:

The three allegations considered during our review were proven true. The IRS targeted specific groups applying for tax-exempt status. It delayed the processing of these groups’ applications, and requested unnecessary information, as well as subjected these groups to special scrutiny.

The inappropriate criteria discussed in this audit were the IRS’s targeting for review Tea Party and other organizations based on their names or policy positions, a practice started in 2012, and which was not fully corrected until May 2012. Actually the practice was started in 2010 and not fully corrected until May of 2012.

Note that George said the three allegations were “proven true.” The allegations all concerned “targeting.” And then he actually used the word. He even said that the “inappropriate criteria” were defined as the “IRS’s targeting.”

Moreover, Koskinen himself uttered “targeting” before he arrived at the IRS, during his confirmation hearings in December, even though he told Congress in March that he had never used the phrase. ...

We understand the public relations concern about acknowledging that the IRS engaged in targeting of conservative groups. But the cat’s out of the bag, given an official IRS report has used the phrase and both George and Koskinen have used it in public testimony.

The IG’s report was carefully written, but at this point, it is silly and counterproductive for Koskinen to fall back on bureaucratese — or even deny that the phrase “targeting” had been used. While perhaps technically correct in terms of the report, this is a slender reed to hide behind. After all, George publicly said that all three allegations of “targeting” were proven, and that using “inappropriate criteria” was the equivalent of “targeting.” That demonstrates that the term “inappropriate criteria” is simply a euphemism. Accept that means “targeting,” and move on.

Three Pinocchios.  Significant factual error and/or obvious contradictions.

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April 7, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

TaxProf Blog Weekend Roundup

Sunday, April 6, 2014

The Next Offshore Tax Target: Cayman Islands

Wall Street Journal Tax Report:  The Next Offfshore Target, by Laura Saunders:

CaymanU.S. authorities are expanding their investigation of hidden overseas assets far beyond Switzerland. The latest focus: the Cayman Islands.

Undercover agents from the IRS conducted a yearlong probe that led to the arrests in Miami last month of three financial advisers based in the Caribbean territory.

This past week, an official at the Justice Department said the sting should serve as a warning about offshore accounts. "The Cayman case illustrates that we have ways of getting information that people don't know about," Assistant Attorney General Kathryn Keneally of the department's Tax Division said at a news conference in New York. "The days of waiting for a warning sign, such as a letter from a bank, are over."

Ms. Keneally said that the government receives account information from many sources, including whistleblowers hoping for monetary rewards. She declined to comment on whether U.S. officials have the names of Americans who hold accounts in the Caymans or elsewhere in the Caribbean as a result of this probe.

Taxpayers are ineligible to participate in the IRS's limited-amnesty program for undeclared offshore accounts if U.S. authorities already have their names. The program imposes steep penalties but offers protection against criminal prosecution.

Experts believe U.S. authorities do have names of account holders in the Caymans.

April 6, 2014 in Tax | Permalink | Comments (1)

Top 5 Tax Paper Downloads

SSRN LogoThere is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with a new #1 paper and a new paper debuting on the list at #5:

  1. [360 Downloads]  Submission to Finance Department on Implementation of FATCA in Canada, by Allison Christians (McGill) & Arthur J. Cockfield (Queen's)
  2. [293 Downloads]  As American as Apple Inc.: International Tax and Ownership Nationality, by Chris William Sanchirico (Pennsylvania)
  3. [287 Downloads]  2012 Developments in Connecticut Estate and Probate Law by Jeffrey A. Cooper (Quinnipiac) & John R. Ivimey (Reid & Riege, Hartford))
  4. [210 Downloads]  Deferral and Exemption of the Income of Foreign Subsidiaries: A Review of the Basic Analytics, by Alvin C. Warren (Harvard)
  5. [173 Downloads]  Exporting FATCA, by Joshua D. Blank (NYU) & Ruth Mason (Virginia)

April 6, 2014 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

Farewell, My Friend

Diet CokeAfter many years of nagging encouragement by my wife, I have reduced my Diet Coke consumption by 75%, and am well on the way toward my 100% goal.  I did not realize the full impact of my decision:

Wall Street Journal, The Diet Soda Business Is in Freefall:

A nearly decade-long decline in U.S. carbonated soft drink sales accelerated last year as more Americans turned their backs on artificially sweetened diet sodas, according to data published Monday.

The drop-off is a mounting problem for industry giants Coca-Cola, PepsiCo and Dr Pepper Snapple Group, which have long depended on zero-calorie sodas to make up the difference as Americans became increasingly concerned about the health effects of sugared drinks.

Overall soda volumes fell an estimated 3% in 2013, the ninth straight yearly contraction and more than double the 1.2% decline in 2012, according to Beverage Digest. ...

Sales volumes of full-calorie Coke, the top-selling U.S. soda, slipped 0.5% last year but Diet Coke plunged 6.8%, according to Beverage Digest. ... Coca-Cola Co., whose soda brands also include Sprite and Fanta, increased its market share of U.S. carbonated soft drinks to 42.4% from 42.0% in 2012, according to Beverage Digest. PepsiCo, which also counts Mountain Dew among its brands, slipped to 27.7% from 28.1%. Dr Pepper Snapple's share inched up to 16.9% from 16.8%.

Beverage giant Coke is far more exposed to soda than chief rival PepsiCo, which also has a huge snacks business. About 60% of Coke's U.S. revenue comes from soda, compared with roughly 25% at PepsiCo. The bulk of Dr Pepper's sales are also tied to soda.

Diet Coke 2

April 6, 2014 in Legal Education, Tax | Permalink | Comments (40)

The IRS Scandal, Day 332