TaxProf Blog

'Twas the Night Before Christmas (Legal Version)

Check out the original and legal versions of the classic poem, 'Twas the Night Before Christmas [click on chart to enlarge]:

Continue reading "'Twas the Night Before Christmas (Legal Version)"

GOP: We'll Accept Higher Taxes If President Obama Gives Us His Dog

Video:  GOP: We'll Accept Higher Taxes If President Obama Gives Us His Dog:

Republicans have proposed a new debt deal that includes higher taxes on the wealthiest 2% on the condition that Obama hands over his daughters' dog.

Ho Ho Holy Discount: Vatican Tax-Free Store Busy

Time:  Ho Ho Holy Discount: Vatican Tax-Free Store Busy:

There’s a little-known open secret in the Vatican gardens, a few paces behind St. Peter’s Basilica and tucked inside the Vatican’s old train station: a sprawling, three-story tax-free department store that rivals any airport duty free or military PX. ...

There’s a hitch, however. It’s not open to the public, only to Vatican citizens, employees and their dependents, diplomats accredited to the Holy See and (unofficially) their lucky friends who, after stocking up on holiday must-haves, proceed to the checkout with their Vatican connection and the ID card that entitles them to shop there.

The Vatican is entitled to run such tax-free enterprises inside its walls based on the Lateran Treaty, the 1929 pact that regularized and regulates the Vatican’s relations with Italy. But those regulations also limit the Vatican’s customer base, lest all of Rome descend on the supermarket to stock up.

TaxProf Blog Weekend Roundup

Saturday:

• UCLA Law Prof Lets Needy Strangers Live Rent-Free in His House: Cool or Crazy?
• WSJ:  Two Fiscal Cliff Tax Debacles: Reduced Tax-Home Pay, No Tax Filing Until March 31
• ABA:  Law Schools Admit More Non-J.D. Students to Offset Decline in J.D. Enrollment
• NY Times:  Congress Must Preserve the Low-Income Housing Tax Credit

Sunday:

• Our Christmas Gift
• Deconstruction Deduction: Home Disassembly and Charitable Donation Rather Than Demolition Yields Big Tax Savings
• Top 5 Tax Paper Downloads
• Excess Profits Taxes and § 901

Our Christmas Gift

Yesterday morning, my son was on a bus on I-80 with 52 other Grinnell College students heading to the Des Moines airport to fly home for the Christmas holiday when the driver suffered a fatal heart attack.  The bus veered off the highway to the right, into a snowbank from the 12 inches of snow that fell in Iowa last Thursday.  Miraculously, none of the students were injured, and after being transported to the hospital in Newton, Iowa, Grinnell arranged for alternative transportation for the students to the airport.  My son made it home safely last night.  My wife and I are so very thankful, especially in light of the tragic events in Newtown, Connecticut -- Christmas will be especially poignant for us this year.  Our hearts go out to the bus driver's family.

Deconstruction Deduction: Home Disassembly and Charitable Donation Rather Than Demolition Yields Big Tax Savings

Wall Street Journal:  The Demolition Discount:

Scott and Pamela Weiss paid a little under $5 million for a home in Palo Alto, Calif., last year. Come tax time, they expect to get back about $66,000 for tearing it down.

That's because the Weisses, who are spending more than $4 million to build a new home on the site, took down the original home using a method known as "deconstruction." In this process, a crew carefully dismantles an older property by hand instead of using bulldozers. The process costs more than a straightforward demolition—the Weisses paid more than $20,000 for the disassembly, roughly double what they would have paid for a wrecking crew. But they were able to donate home materials such as lumber, roof tiles and even lamps to nonprofits for reuse.

The donated materials were appraised by an appraisal-and-consulting firm at $159,000, which the Weisses can apply to their tax bill to receive a deduction. Based on the Weisses' tax bracket, Ms. Weiss estimates that will ultimately work out to a savings of around $66,000, or more than three times the cost of the deconstruction.  ...

Deconstruction is a growing trend, as more homeowners try to avoid the wrecking ball when they remodel or tear down and instead find a way to reuse everything from doors to windows to light switches. Spurring the movement is growing awareness of "green" building, as well as more laws restricting the dumping of building materials into landfills. It doesn't hurt that there's typically a big fat tax break attached, either.

While the tax break has been around for decades, deconstruction had mostly occurred in fits and starts in pockets across the country, including a wave in the 1990s. This current surge is centered in wealthy enclaves along the West Coast, in areas such as Silicon Valley and cities including San Diego, Los Angeles, Portland, Ore., and Seattle. Many of those locales share a distinctive set of features: populations with eco-friendly mind-sets; an older housing stock ripe for tear downs; strict environmental laws and moneyed residents eager for a substantial tax credit. ...

The ReUse People of America, a nonprofit building-materials salvage and reuse organization with 13 offices nationwide, says it has done 250 deconstructions this year, up 25% from 2008. The largest slice of the deconstructions—about a fifth—took place in California, says ReUse People's president, Ted Reiff. Outside the West Coast, cities such as Chicago and Durham, N.C., also had a sprinkling of deconstructions, he says.

For the tax consequences of the alternative strategy of claiming a charitable deduction for the donation of a home to a fire department for demolition as a training exercise, see:

• IRS Burns Kirk Herbstreit's Donation of Home to Fire Department (July 24, 2009)
• IRS Denies Deduction for Homes Donated to Fire Departments and Burned Down (Sept. 26, 2009)
• District Court Denies Charitable Deduction for Donation of Home to Fire Department (July 26, 2010)
• Oregon Gubernatorial Race Roiled by Candidate's Charitable Deduction for Donation of Home to Fire Department (Oct. 7, 2010)
• Tax Court Denies Charitable Deduction for Home Demolished by Fire Department in Training Exercise (Nov. 5, 2010)
• Charitable Deductions for Homes Demolished by Fire Department in Training Exercises (Dec. 11, 2011)
• 7th Circuit Denies Charitable Deduction for Home Demolished by Fire Department in Training Exercise (Feb. 9, 2012)
• Tax Court Denies Charitable Deduction for Home Donated to Fire Department and Burned Down in Training Exercise (June 28, 2012)

Top 5 Tax Paper Downloads

There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with a new paper debuting on the list at #4.  The #1 paper is #5 in all-time downloads among 8,858 tax papers:

1.  [4109 Downloads]  Top Marginal Effective Tax Rates by State and by Source of Income, 2012 Tax Law vs. 2013 Scheduled Tax Law, by Gerald T. Prante & Austin John (both of Lynchburg College, School of Business and Economics)

2.  [239 Downloads]  Taxation in the Bible, by Geoffrey P. Miller (NYU)

3.  [220 Downloads]  Technological Innovation, International Competition, and the Challenges of International Income Taxation, by Michael J. Graetz (Columbia) & Rachael Doud (J.D. 2012, Yale)

4.  [212 Downloads]  The End of Taxation without End: A New Tax Regime for U.S. Expatriates, by Bernard Schneider (Queen Mary, University of London School of Law)

5.  [168 Downloads]  Romney's Tax Plan Won't Work Like Reagan's Did, by Bruce Bartlett

Excess Profits Taxes and § 901

Timothy Nuccio (J.D. 2013, Iowa), Excess Profits Taxes and § 901:

This paper analyzes the U.K. Windfall Tax's creditability under § 901 of the Internal Revenue Code and its associated regulation. When this paper was originally written in the fall of 2011, the United States Tax Court had found the U.K. Windfall Tax creditable in two cases. Both were appealed to separate circuits, and while the Entergy case was affirmed, the PPL case was reversed. The Supreme Court has since granted certiorari and will resolve the circuit split this year.

This paper shows that the U.K. Windfall Tax is a creditable tax regardless of the regulation requiring litigants to demonstrate that the tax is an "income tax" for creditability. This paper will also be substantially revised before it is published due to new developments in the case. It uses historical evidence of the 1940s-era Excess Profits Tax to show that the U.K. Windfall Tax fits squarely into the definition of excess profits taxes contemplated by Congress when they passed the Revenue Act of 1918, from which the current § 901 came verbatim.

UCLA Law Prof Lets Needy Strangers Live Rent-Free in His House: Cool or Crazy?

L.A. Times:  Letting Strangers Live Rent-Free in His House: Cool or Crazy?:

When Tony Tolbert turned 50 last year, he marked the occasion by moving in with his mother.

The decision wasn't about money. He's a Harvard-educated attorney, on the staff of UCLA's law school. And it wasn't because his mother wanted or needed him home.

It was Tolbert's response to the sort of midlife milestone that prompts us to take stock. Instead of buying a sports car, he decided to turn his home — rent free — over to strangers. 

He'd been inspired by a magazine article about a family that sold their house, squeezed into a tiny replacement and donated to charity the $800,000 proceeds from the sale. "It just struck me how powerful a gesture that was," Tolbert said. "It challenged me to think about what I could do, where I might have some overflow in my life."

His overflow was a modest home on a quiet tree-lined street a short walk from Crenshaw Boulevard. He'd lived there alone for 10 years.

Last January, he moved out and a young single mother with three little children moved in. A South Los Angeles domestic violence program chose the family from its shelter and brokered the deal. He agreed to let her pay one dollar a month, and imposed on her only one rule: "Whatever has to happen to keep things drama free, that's what I need you to do." ...

Tolbert left the good furniture for the woman who moved in. He didn't hide his grandmother's heirloom quilt or put away the fine art."I told her straight out, this is my home. I'm leaving these things for you to enjoy. I want you to be comfortable here."

That was a learning process for Tolbert: "It was a good exercise in not grasping and hanging on to stuff.... Short of them burning the house down, I had to accept that whatever they tear up, it can also be repaired." ... "I'm just a regular dude," he said. "I'm not brave. I'm not a millionaire, with houses to burn. I just wanted to do something to help somebody."

WSJ: Two Fiscal Cliff Tax Debacles: Reduced Tax-Home Pay, No Tax Filing Until March 31

Wall Street Journal Tax Report:  Paycheck Debacles, by Laura Saunders:

Lawmakers are working to keep the country from going over the "fiscal cliff," but already they have caused two snafus that will soon hit millions of pocketbooks—and maybe even the economy.

The first involves take-home pay, which could be lower than expected for many workers. Until Congress sets next year's tax rates, the IRS can't issue 2013 withholding tables, and employers in turn can't adjust computers and paychecks. ...

The other snafu is a certainty as well: a several-week delay in the coming tax filing season. This exists because several fiscal-cliff-related tax provisions expired at the beginning of 2012. The most important is an adjustment to the alternative minimum tax; others include popular breaks such as deductions for state and local sales taxes, tuition and fees, and schoolteachers' expenses, plus the charitable individual retirement account donation for people 70½ and older.

IRS Acting Commissioner Steven Miller warned in two recent letters to House Ways and Means Committee members that if lawmakers don't fix the alternative minimum tax, there will be dire consequences. Not only will the number of AMT payers swell to 34 million from about 4 million, but the agency's computers will have to be reprogrammed. Up to 100 million taxpayers—two-thirds of the total—might not be able file 2012 taxes before the end of March or even later, he said.

• Bloomberg, IRS Will Address 2013 Paycheck Withholding By Dec. 31

ABA: Law Schools Admit More Non-J.D. Students to Offset Decline in J.D. Enrollment

ABA press release:  ABA Legal Education Section Reports Preliminary Data on Non-J.D. Enrollment Growth, 2000-2012:

Enrollment in non-J.D. programs at ABA-approved law schools has increased markedly since 2000, partly offsetting declines in J.D. enrollment during the same period, according to preliminary data released today by the ABA Section of Legal Education and Admissions to the Bar.

ABA-approved law schools reported a 39% increase in enrollment in non-J.D. programs from 2005 to 2012 and a 52% increase from 2000 to 2012, according to data provided to the section.

Preliminary data released by the ABA in November show that first-year enrollment in J.D. programs fell by 8% between 2005 and 2012. First-year enrollment in J.D. programs was 1% higher in 2012 than in 2000. Total enrollment in J.D. programs was 11% higher in 2012 than in 2000 but fell slightly between 2005 and 2012.

• ABA Journal, Enrollment in Non-J.D. Programs at U.S. Law Schools Is Up, Figures Show
• National Law Journal, Non-J.D. Candidates Easing the Strain on Law Schools

NY Times: Congress Must Preserve the Low-Income Housing Tax Credit

New York Times editorial:  A Tax Credit Worth Preserving:

Lawmakers interested in simplifying the corporate tax code must take care to protect the low-income housing tax credit, which allows corporations to reduce their tax liabilities by investing in affordable housing. Without it, affordable-housing construction, which already falls far short of the need, would quickly grind to a halt.

Created by Congress in 1986, the credit is available to investors prepared to sink money into new or rehabilitated low-income housing. It is responsible for about 90 percent of all the affordable housing that is built in this country, and has provided more than 2.5 million rental units since its inception. It also produces as many as 100,000 jobs each year.

The system is especially useful in times of disaster. After Hurricanes Katrina and Rita, for example, the credits were used to finance about 27,000 affordable homes and apartments in the affected states. This same mechanism could be extremely useful in the wake of Hurricane Sandy.

(Hat Tip: Mike Talbert.)

Voting Ends Today in ABA Blawg 100

Voting ends today in the 2012 ABA Blawg 100 -- "the 100 best Web sites by lawyers, for lawyers, as chosen by the editors of the ABA Journal." TaxProf Blog is one of fourteen blogs nominated in the Niche category. To vote, go here.

Call for Papers: Critical Tax Theory Conference

UC-Hastings has issued a call for papers for the 16th Critical Tax Theory Conference on April 12-13, 2013:

Critical tax scholars ask why the tax laws are the way they are and what impact tax laws have on historically disempowered groups, such as people of color; women; lesbian, gay, bisexual, and transgendered individuals; low-income and poor individuals; the disabled; and nontraditional families. Critical tax scholarship shares the following goals: (1) to uncover bias in the tax laws; (2) to explore and expose how the tax laws both reflect and construct social meaning; and (3) to educate nontax scholars and lawyers about the interconnectedness of taxation, social justice, and progressive political movements. Critical tax scholars employ a variety of methods to achieve these goals such as bringing “outsider” perspectives to the study of tax law; using historical material, contemporary case studies, and personal or fictional narratives to illustrate the practical impact of the tax laws on individuals and groups; interpreting social science and economic data to show how the tax laws impact groups differently; and exploring the interconnectedness of tax laws with economic forces such as the labor market  and international financial and political development.

If you are interested in presenting a paper, please email Leo Martinez and Roz Foy.

• 2012 Critical Tax Theory Conference (Seton Hall)
• 2011 Critical Tax Theory Conference (Santa Clara)
• 2010 Critical Tax Theory Conference (St. Louis)
• 2009 Critical Tax Theory Conference (Indiana-Bloomington)
• 2008 Critical Tax Theory Conference (Florida State)
• 2007 Critical Tax Theory Conference (UCLA)
• 2005 Critical Tax Theory Conference (Seattle)
• 2004 Critical Tax Theory Conference (Rutgers-Newark)

A Comparative Analysis of Tax Advisers’ Perception of Small Business Tax Law Complexity

Brett Freudenberg (Griffith University), Binh Tran-Nam (University of New South Wales), Stewart Karlinsky (San Jose State University) & Ranjana Gupta (Auckland University), A Comparative Analysis of Tax Advisers’ Perception of Small Business Tax Law Complexity: United States, Australia and New Zealand:

There is no doubt that the tax laws of many countries are complex and difficult to comply with administratively. In particular, Australia, New Zealand and the United States have tax systems that are generally recognized as complex especially for small businesses. They also have the distinction of having had a significant portion of their tax policy literature address the issue of complexity and its impact. What has been given scant recognition is the ability of different tax systems to learn from the successes and failures of each other. This article will try to bridge that gap by comparing tax advisers’ perceptions of tax law complexities in these three jurisdictions that impact a crucial segment of the economy, small business.

Sheaffer: The Deductibility of Educational Expenses

Dan Sheaffer (Cooley), Letting the Horse Out of the Barn: A Proposal to Treat Educational Expenses Like Other Business Expenses, 28 T.M. Cooley L. Rev. 247 (2011):

The goals of this Article are to highlight and demonstrate the flaws of the current Regulation and propose changes to address those flaws. Part II of this Article briefly discusses the history of educational expenses under Section 162 and the current Treasury Regulation. Part III highlights and demonstrates the fundamental flaws of the current Regulation by examining various cases. In Part IV, this Article offers proposed amendments to the current Regulation that directly address the identified flaws with the newtrade- or-business test. This Article provides concluding comments in Part V.

Robert Morris University Seeks to Hire a Tax Prof

The Robert Morris University School of Business Department of Accounting and Taxation invites applications for three 9-month faculty positions:

• Two candidates to teach accounting information systems, cost accounting, financial accounting or auditing
• One candidate to primarily teach taxation  

Candidates for the accounting positions should have a Ph.D. in Accounting from an AACSB-accredited institution, or be nearing the completion of such program. Candidates for the taxation position should also have a Ph.D. in Accounting from an AACSB-accredited institution, or alternatively a JD/LLM in Taxation.

Anticipated Start Date: August, 2013

Review of applications will begin immediately and will continue until the positions are filled. Applications should be submitted electronically to Business@rmu.edu c/o Carol MacPhail, Interim Head, Department of Accounting and Taxation. Application packages should include a letter of application, curriculum vita, teaching evaluations, and evidence of scholarship, copies of official transcripts and a list of three academic and/or professional references.

Dandridge: Rising Federal Tax Regulation and Its Impact on Small Nonprofit Entities

Nicole S. Dandridge (Michigan State), Choking Out Local Community Service Organizations: Rising Federal Tax Regulation and Its Impact on Small Nonprofit Entities, 99 Ky. L.J. 695 (2011):

Small community nonprofit and charitable organizations are a vital component of American life and culture. These organizations encourage community collaboration and are in-tune with the acute needs of their respective local populations. In the face of pressure to downsize government and reduce federal, state, and local spending, small nonprofits have become integral to delivering basic human and social goods and services to the public. These groups endure almost solely on donations of time and money and do not have cash reserves or extensive assets that will allow them to hire legal or other professional counsel to assist in business and legal compliance matters.

Obtaining and maintaining § 501(c)(3) tax-exempt status allows the balance of these groups to operate as viable entities by opening the door to vast grant and donation opportunities with which to fund their programs. Gaining tax-exempt status requires in-depth business and financial planning and a complex application process, which many small nonprofits complete without the benefit of counsel. Until recently, small nonprofit organizations were subject to modest federal regulatory compliance measures in excess of compliance with the tax code under which they gained exemption.

Over the past decade, in the name of strengthening transparency, accountability, and governance, Congress and the IRS have increased federal regulation of nonprofit and charitable entities, which includes many measures that were otherwise within the purview of state rule, and have not spared small nonprofits in this effort. New regulations of significant interest to small nonprofit groups include the 2004 revision of the federal application for tax-exempt status, which now includes extensive governance provisions, and the new annual reporting requirement for small nonprofits and revocation of tax-exempt status for consecutive non-filing, pursuant to the Pension Protection Act of 2006. This increase in regulation creates a certain “federalization” of nonprofit law that has overly burdensome consequences on valuable small nonprofit organizations with limited resources.

This Article begins by identifying and describing the unique and essential roles of, and challenges that face, small nonprofit tax-exempt organizations and their leaders. This Article then reviews the promulgation of new and heightened federal regulatory requirements that most concern small nonprofit groups and the impact and implications of these regulations. Informed by the theoretical models of Responsive Regulation and New Governance, this Article concludes by offering a reasonable regulatory approach as it relates to the restoration of federal tax-exempt status for small nonprofits facing revocation of tax exemption for failure to file consecutive annual returns.

Appellate Court Affirms Dismissal of Placement Data Lawsuit Against New York Law School

A New York appellate court yesterday affirmed the trial court's dismissal of a proposed class action brought against New York Law School by nine alumni who claimed that the school misrepresented its placement data. Gomez-Jimenez v. New York Law School, 2012 NY Slip Op 08819 (A.D. Dec. 20, 2012):

This appeal involves the propriety of the disclosures of post-graduate employment and salary data by defendant New York Law School to prospective students during the period August 11, 2005 to the present. Plaintiffs allege that the disclosures cause them to enroll in school to obtain, at a very high price, a law degree that proved less valuable in the market-place than they were led to expect. We hold that defendant's disclosures, though unquestionably incomplete, were not false or misleading. We thus affirm the dismissal of the complaint. ...

Here, the challenged practice was consumer-oriented insofar as it was part and parcel of defendant's efforts to sell its services as a law school to prospective students. Nevertheless, although there is no question that the type of employment information published by defendant (and other law schools) during the relevant period likely left some consumers with an incomplete, if not false, impression of the schools' job placement success, [the] Supreme Court correctly held that this statistical gamesmanship, which the ABA has since repudiated in its revised disclosure guidelines, does not give rise to a cognizable claim under GBL 349. First, with respect to the employment data, defendant made no express representations as to whether the work was full-time or part-time. Second, with respect to the salary data, defendant disclosed that the representations were based on small samples of self-reporting graduates. While we are troubled by the unquestionably less than candid and incomplete nature of defendant's disclosures, a party does not violate GBL 349 by simply publishing truthful information and allowing consumers to make their own assumptions about the nature of the information. Accordingly, we find that defendant's disclosures were not materially deceptive or misleading. ... 

We are not unsympathetic to plaintiffs' concerns. We recognize that students may be susceptible to misrepresentations by law school. As such, "[t]his Court does not necessarily agree [with Supreme Court] that [all] college graduates are particularly sophisticated in making career or business decisions" (MacDonald, 2012 WL 2994107, at *10). As a result, they sometimes make decisions to yoke themselves and their spouses and/or their children to a crushing burden because the schools have made misleading representations that give the impression that a full time job is easily obtainable when in fact it is not.

Given this reality, it is important to remember that the practice of law is a noble profession that takes pride in its high ethical standards. Indeed, in order to join and continue to enjoy the privilege of being an active member of the legal profession, every prospective and active member of the profession is called upon to demonstrate candor and honesty. This requirement is not a trivial one. For the profession to continue to ensure that its members remain candid and honest public servants, all segments of the profession must work in concert to instill the importance of those values. "In the last analysis, the law is what the lawyers are. And the law and the lawyers are what the law schools make them." Defendant and its peers owe prospective students more than just barebones compliance with their legal obligations. Defendant and its peers are educational not-for-profit institutions. They should be dedicated to advancing the public welfare. In that vein, defendant and its peers have at least an ethical obligation of absolute candor to their prospective students.

• ABA Journal, Appeals Court ‘Troubled’ By NY Law School Job Stats, But Says Lower Court Was Right to Nix Suit
• Above the Law, Dismissal of Class Action Suit Against New York Law School Is Affirmed
• Bloomberg, New York Law School Suit Dismissal Upheld by Appeals Court
• New York Law Journal, NYLS Wins Dismissal of Class Action Over Job Figures
• Reuters, New York Law School Grads Can't Sue Over Misleading Jobs Data: Appeals Court
• Wall Street Journal, Dismissal of Law School Jobs Data Suit Upheld by NY Appeals Court

Blank & Staudt: Corporate Shams

Joshua D. Blank (NYU) & Nancy C. Staudt (USC), Corporate Shams, 87 N.Y.U. L. Rev. 1641 (2012):

Many people—perhaps most—want to make money and lower their taxes, but few want to unabashedly break the law. These twin desires have led to a range of strategies, such as the use of “paper corporations” and offshore tax havens, that produce sizable profits with minimal costs. The most successful and ingenious plans do not involve shady deals with corrupt third parties, but strictly adhere to the letter of the law. Yet the technically legal nature of the schemes has not deterred government lawyers from challenging them in court as “nothing more than good old-fashioned fraud.”

In this Article, we focus on government challenges to corporate financial plans—often labeled “corporate shams”—in an effort to understand how and why courts draw the line between legal and fraudulent behavior. The scholars and commentators who have investigated this question nearly all agree: Judicial decision making in this area of the law is erratic and unpredictable. We build on the extant literature with the help of a new, large dataset, and uncover important and heretofore unobserved trends. We find that courts have not produced a confusing morass of outcomes (as some have argued), but instead have generated more than a century of opinions that collectively highlight the point at which ostensibly legal planning shades into abuse and fraud. We then show how both government and corporate attorneys can exploit our empirical results and explore how these results bolster many of the normative views set forth by the scholarly and policymaking communities.

The Competing Obama and Boehner Tax Plans

• Center on Budget and Policy Priorities (Robert Greenstein), A Bonanza for Scrooge, But a Lump of Coal for Tiny Tim
• Center on Budget and Policy Priorities (James Horney), Program Cuts Far Exceed Revenue Increases Under Latest Obama Offer
• Center on Budget and Policy Priorities (Chye-Ching Huang), Two Things You Probably Don't Know About "Plan B"
• Center on Budget and Policy Priorities (Chuck Marr), Plan B's Harshness Belies GOP Rhetoric on Poverty and Opportunity
• Citizens for Tax Justice, Comparing Speaker Boehner’s “Plan B” Tax Proposal and President Obama’s Latest Proposal
• Don't Mess With Taxes (Kay Bell), Boehner's Plan B, Hated by Everyone
• Forbes (Janet Novack), A Closer Look at Boehner's Plan B: Tax Hikes for Parents and Workers
• Forbes (Robert Wood), Plan B: Who Wants To Be A Millionaire?
• Tax Foundation (Stephen J. Entin & William McBride), The Impact of Speaker Boehner's Millionaire Tax
• Tax Vox Blog (Howard Gleckman), Should Working Class Families Pay Higher Tax so High Income People Can Pay Less?

The Sales Tax Treatment of Digital Photographs

Philippa S. Loengard (Columbia) & Amanda S. Disanto (J.D. 2012, Columbia), Picture This: A Call for Uniformity in the Sales Tax Treatment of Digital Photographs, 35 Colum. J.L. & Arts 549 (2012):

This paper will argue that states should uniformly impose the same tax treatment on digital transfers of photographs as they do on transfers made through traditional methods, such as when a negative or print is sold. The current sales tax system costs both states and photographers time and money. States suffer lost revenue through uncollected sales tax and through the time that revenue department employees spend in addressing questions from the community in an attempt to clarify confusing and unnecessarily complex laws. Photographers, in turn, must either hire tax practitioners to sort out what taxes are owed or devote energies towards circumventing the tax laws. The current system is inefficient and should change to provide clarity and consistency among the states, creating a new regime where substance is taxed over form.

Part I of this paper will outline the history of sales tax in the United States and the policy implications of having such a tax. Part II will examine how states have developed distinctions between tangible and intangible products and how courts have struggled with this delineation. This Part will then outline and rebut some of the common rationales espoused by states that have not yet extended sales tax to all digital goods. Part III will provide an overview and brief comparative analysis of other goods that have similar sales tax implications to that of digital photography. Included in this discussion are computer software, ringtones, music and e-books. Part IV, section A will focus on the history and taxation of photography. Part IV, section B will describe the rise of digital photography and summarize the various methods through which photography can be disseminated to consumers. Part IV, section C will demonstrate how something as trivial as the method by which photographs are delivered can determine whether or not sales tax currently needs to be collected and remitted. It will also explore the problems caused by outdated tax laws that fail to account properly for the prevalence of digital sales and discuss objections to the taxation of electronically transferred photographs. Part V will detail efforts to simplify and clarify sales tax law and will highlight the efforts of the Streamlined Sales Tax Project (SSTP) to create uniformity among states' tax regimes. Finally, our conclusion will advocate that states eliminate arbitrary distinctions between digital and nondigital goods and revise their tax codes to provide photographers with clear, consistent and comprehensive guidance on when sales tax is due.

In order to make this topic manageable we acknowledge some constraints. First, in conducting interviews we contacted members of the American Society of Media Photographers (ASMP), America's largest organization representing professional commercial photographers. They, in turn, led us to a variety of photographers across the country. While we were able to garner significant anecdotal evidence, we were not able to reach out to a large enough number to complete a true empirical study of the effect of current or proposed legislation on the industry as a whole. Additionally, we will not differentiate between sales and leases of photographs. Often when a photographer “sells” an image, he or she is charging the customer for a hard copy or digital copy of the image, but retaining the copyright in the work. In addition, there is often a time limit involved. Thus, many photographers consider transactions such as these to be leases. The states, however, normally view these transactions as different in name only and their tax treatment is generally identical. We also acknowledge that there are some images that are transmitted digitally but that are not taxed because they are determined to be sales for resale. Finally, many photographers feel that they should not pay tax on their sales because they consider them a service transaction rather than a sale of goods. If the item is classified as a service, a topic we will address below, then it may be removed from the tax regime and concerns about sales tax policy are moot. Our arguments are focused on those transactions which are subject to sales tax, and our position is that once an image is subject to taxation, said taxation should not differ based on the image's format.

Morse: Narrative and Tax Compliance

Susan C. Morse (UC-Hastings), Narrative and Tax Compliance:

Some noncompliant taxpayers fall outside the reach of government interactions such withholding, third-party reporting and audit. This paper explores the possibility of influencing such taxpayers using narrative strategies rooted in small group norms. Communications scholarship theorizes that narrative persuades an audience based on its “probability,” or coherence, and “fidelity,” or truthfulness. Narrative about tax compliance could persuasively incorporate prosocial content about government benefits, prosocial content about taxpayer compliance, and/or punishment content. However, taxpayer confidentiality, execution risk, and cost/benefit considerations affect the promise of narrative tax compliance strategies for various groups of target taxpayers.

HuffPo: Is It Time to Overhaul Legal Education?

Huffington Post Live:  Judgment Day:

With fewer students applying to law schools and no guarantee of work for the graduates, is it time to overhaul the legal education system? [video]:

• Luke Bierman (Professor, Northeastern)
• Paul Campos (Professor, Colorado)
• Elie Mystal (Editor, Above the Law)
• Brian Tamanaha (Professor, Washington U.)
• Jamie Weissglass (recent law school graduate)

Huffington Post op-eds on legal education:

• Luke Bierman (Professor, Northeastern), Deconstructing the Law School Deconstructionists
• Frank H. Wu (Dean, UC-Hastings), In Praise of Practical Legal Education
• Frank H. Wu (Dean, UC-Hastings), The Problem with Legal Education

NY Times: State and Local Governments Fight to Preserve Tax Exemption for Municipal Bond Interest

New York Times:  Municipalities Fight a Proposal to Tax Muni Bond Interest:

[There is a] lobbying campaign by local and state governments, bond dealers, insurers and underwriters that is trying to pre-empt any attempt to limit or even kill the tax exemption. The administration has proposed capping the tax break that America’s highest earners now receive from municipal bonds, as part of its campaign to close loopholes and enlist more of the rich in fighting the federal deficit. Analysts expect such a cap to be part of a comprehensive tax overhaul package that Congress will take up next year, under a broad fiscal framework now being negotiated by President Obama and House Speaker John A. Boehner.

“This is the most serious threat to tax-exempt bonds since Roosevelt, in the late 1930s, tried to repeal the exemption across the board,” said John L. Buckley, a professor of taxation at Georgetown University and former chief counsel to the House Ways and Means Committee.

At present, the federal government forgoes about $32 billion a year in taxes by exempting the interest that investors earn from municipal bonds.... The tax exemption is thought to help states and local governments market their bonds, lowering their borrowing costs. But some fiscal analysts say that an undue share of the exemption’s value goes not to local governments, but to the wealthiest bond buyers instead.

(Hat Tip: Mike Talbert.)

Seton Hall Law School Offers 52% Tuition Discount to Fill Incoming 1L Class

Press Release:  Seton Hall Law School Reduces Tuition by More than 50% for Eligible Students, Offering ‘A Private Legal Education at a Public School Price’:

Seton Hall University has announced that it will extend its widely acclaimed merit-based tuition reduction program to its School of Law, reducing tuition by over 50% for eligible students. The tuition cuts for undergraduate students at Seton Hall University went into effect in 2012 and were recently extended for the 2013-14 academic year. The University will now extend the program further, offering “a private legal education at a public school price” to eligible incoming students at Seton Hall Law School, the only private law school in New Jersey. ...

For eligible incoming full-time first-year students, tuition at Seton Hall Law School will be reduced in the 2013-14 academic year [from $47,330] to $22,330. ...

• To qualify for this tuition discount, students must have an LSAT score of 158 and higher and an undergraduate GPA of 3.5 or higher. ...
• The tuition credit is based on Rutgers Law-Newark 2012-2013 in-state tuition rate for full-time students ($22,746) and part-time students ($20,856 – up to 11 credits, flat fee).
• Students who matriculate under this program as incoming full-time students, will remain eligible for this tuition rate reduction for up to 3 years (6 semesters), provided that the student maintains a 2.80 cumulative GPA or remains in the top 75% of the class (whichever is more favorable to the student).

Press and blogosphere coverage:

• Paul Campos (Colorado), Hurry, Quantities Are Limited
• National Law Journal, Seton Hall Hopes Tuition Discount Will Persuade Fence-Sitters

The Moral Solution to the Fiscal Cliff: Earned Income Brings Happiness, Unearned Income Breeds Despair

Wall Street Journal op-ed:  America's Dangerous Powerball Economy: Unearned Income—as from the Lottery or Entitlements—Doesn't Buy Happiness, by Arthur Brooks:

What can the state lottery teach us about how to deal with the fiscal cliff? Quite a bit, actually. ...

[H]itting the jackpot generally leads to unhappiness. ... There is a huge amount of research showing that money, when earned, has a generally positive association with happiness. The problem is when it is unearned, when raw purchasing power is untethered from hard work and merit. Above basic subsistence, happiness comes not from money per se, but from the value creation it is rewarding. ... While earned success facilitates the pursuit of happiness, unearned transfers generally impede it. ...

All this data relates to our policy debates because every year, fewer and fewer people earn their way in America without a government subsidy. As my colleague Nicholas Eberstadt has written, entitlements have doubled as a percentage of the ballooning federal budget since 1960. Today, more than half of American households receive government transfer benefits. ... The Tax Foundation notes that nearly 70% of Americans now take more out of the tax system than they pay into it.

It is a simple fact that the United States is becoming an entitlement state. The problem with this is not just that it is bankrupting the country. It is that the entitlement state is impoverishing the lives of the growing millions dependent on unearned resources.

The good news is that we have a golden opportunity to rein in entitlements, for the first time in many years. But there is bad news, too. President Obama argues that the real problem is undertaxing the public, not overspending on entitlements. ...

Mr. Obama's proposal suggests he is entirely comfortable with an entitlement state. His telling entrepreneurs that they weren't responsible for their success on the specious grounds that government was responsible for the country's infrastructure—"You didn't build that"—wasn't just an inartful turn of phrase. It implied he is blind to the moral difference between what is earned and what is unearned.

Before us today is a chance to improve the true welfare of our nation while changing our overspending ways. By reforming entitlements and the tax system instead of extracting more money with higher tax rates, the economy could be reoriented away from unearned transfers to earned wages. This would make the economy fairer and sounder. And in the process it could build a happier country for ourselves and our children.

Unleashing Market Forces in Legal Education and the Legal Profession

Deborah Jones Merritt (Ohio State) & Daniel C. Merritt, Unleashing Market Forces in Legal Education and the Legal Profession, 26 Geo. J. Legal Ethics ___ (2013) (reviewing Brian Tamanaha (Washington U.), Failing Law Schools (University of Chicago Press, 2012)):

Brian Tamanaha has written a thoughtful critique of legal education; we agree with his assessment and many of his prescriptions. Tamanaha, however, does not press hard enough on a fundamental flaw that plagues both legal education and law practice: Our profession operates as a tournament guild. Law schools and established practitioners maintain a lengthy, stressful, and expensive series of competitions to separate winners from losers. A small number of lawyers reap most of the guild profits; others toil for much less reward or leave the profession.

Addressing this problem requires easing the market restraints that currently shield the legal profession. Ordinary fraud and consumer protection laws adequately protect clients; tighter constraints benefit established lawyers, while harming new lawyers and consumers. In this essay, we outline law’s status as a tournament guild, then suggest how market competition could address some of the problems identified by Tamanaha and other critics of legal education.

Other reviews of Failing Law Schools:

Continue reading "Unleashing Market Forces in Legal Education and the Legal Profession"

Zelinsky: Congress Should Limit the Estate Tax Charitable Deduction

Edward A. Zelinsky (Cardozo), Limit the Estate Tax Charitable Deduction:

One widely-discussed possibility for reforming the federal income tax is limiting the deduction for charitable contributions. Whether or not Congress amends the Code to restrict the income tax deduction for charitable contributions, Congress should limit the charitable contribution deduction under the federal estate and gift taxes. Such a limit would balance the need for federal revenues with the desirability of encouraging charitable giving. ...

There is ... considerable tension between the Buffett commitment to federal estate taxation and the Buffett commitment to philanthropy. By virtue of the estate tax charitable deduction, when a wealthy decedent leaves part or all of his estate to charity, no estate tax is paid on these contributed amounts. ...

A limit on the estate tax charitable deduction could be constructed to fall only on relatively larger estates. For example, the first $10 million of charitable bequests could be fully deductible for estate tax purposes and only the amount gifted over that threshold would be deductible in part. Alternatively, the limit could be phased in as charitable contributions increase. For example, the first $10 million of charitable bequests could be fully deductible for estate tax purposes. Then the next $50 million of philanthropic gifts could be 90% deductible and any further gifts would be 70% deductible for federal estate tax purposes.

The details are less important than the basic policy: By limiting the estate tax charitable deduction, all large estates donated to philanthropy would pay some federal estate tax revenues at a reduced rate. This would balance the need for federal revenues with the encouragement of the kind of charitable bequests quite commendably encouraged by Mr. Buffett and the Giving Pledge.

Why Conservatives Should Support a Carbon Tax

Shi-Ling Hsu (Florida State; author of The Case for a Carbon Tax) & Yoram Bauman (The 'Stand-up Economist'), Why Conservatives Should Support a Carbon Tax:

Why should conservatives support a carbon tax? Current conservative orthodoxy is that no tax is a good tax. But some are taxes less bad than others. If a carbon tax can be used to reduce other taxes, or if a carbon tax is a new source of revenues for deficit reduction instead of raising other taxes, the net economic benefits of such a swap are likely to be positive even if one believes there are no environmental benefits. Second, the alternative to a carbon tax is less efficient: federal command-and-control regulation of greenhouse gas emissions under the Clean Air Act. The Supreme Court has held that the EPA must regulate greenhouse gas emissions under the Clean Air Act, and this requirement will not be legislatively repealed unless it is replaced by something comprehensive, like a carbon tax. In short, a carbon tax is the simplest, cheapest, and least intrusive way to reduce greenhouse gas emissions, and if substituted for other taxes, can provide economic benefits to boot. A carbon tax would not only be consistent with conservative, small-government principles, but can help advance them.

Ninth Circuit: NOL 'Carryover' Does Not Include NOL 'Carryback'

The  Ninth Circuit yesterday affirmed the Tax Court (135 T.C. 573 (2012)) and held that an NOL carryover is not an NOL carryback for purposes of § 56(d)(1)(A)(ii)(I):

Between 2002 and 2009, § 56 of the Internal Revenue Code provided tax relief by permitting taxpayers subject to the Alternative Minimum Tax (AMT) to offset up to 100% of their taxable income with net operating losses (NOLs). To qualify for this relief, NOLs had to be (1) “carryovers to” the 2001 or 2002 tax years, or (2) “carried back from” the 2001 or 2002 years to a prior tax year. The plain meaning of the term “carryovers” prevents taxpayers from using NOLs that are carried back to 2001 or to 2002 from a later tax year to take advantage of the Relief Rule. Therefore, we affirm the Tax Court’s assessment of a deficiency, because Metro One Telecommunications may not take advantage of the Relief Rule with NOLs it carried back from the 2003 and 2004 tax years to 2002. 

Metro One Telecommunications, Inc. v. Commisioner, No. 11-70819 (9th Cir. Dec. 18, 2012). (Hat Tip: Bob Kamman.)

TIGTA Submits Semiannual Report to Congress

The Treasury Inspector General for Tax Administration yesterday submitted its Semiannual Report to Congress:

It is my honor to submit this Semiannual Report to Congress summarizing the accomplishments of the Treasury Inspector General for Tax Administration (TIGTA) for the reporting period of April 1, 2012 through September 30, 2012. This report highlights the most notable audits, investigations, and inspections and evaluations performed by TIGTA, as we continue to work diligently to provide oversight of the Internal Revenue Service (IRS) and protect the integrity of Federal tax administration. ...

Increasing voluntary taxpayer compliance and reducing the Tax Gap remain the focus of many IRS initiatives. Nevertheless, the IRS continues to face significant challenges in obtaining complete and timely compliance data and developing the methods necessary to interpret the data. Even with improved data collection, the IRS will need to develop broader strategies and conduct more research to determine which actions are most effective in addressing taxpayer noncompliance.

The IRS has also expanded its efforts to detect and prevent identity theft. However, the impact of identity theft on tax administration is significantly greater than the amount the IRS detects and prevents. TIGTA’s analysis of tax returns using characteristics of IRS-confirmed identity theft has identified approximately 1.5 million tax returns with potentially fraudulent tax refunds totaling in excess of $5.2 billion. TIGTA estimates that the IRS could potentially issue $21 billion in fraudulent tax refunds over the next five years as a result of identity theft.

Economic Growth, Not Tax Rates, Is Prime Driver of Charitable Giving

Wall Street Journal op-ed:  A Christmas Wish for Charities, by Kimberly O. Dennis (President & CEO, Searle Freedom Trust):

Nonprofits that oppose a limit on deductions but agree to higher tax rates make a devil's bargain.

Data from Giving USA, which tracks trends in American philanthropy, show that charitable donations as a percentage of disposable personal income has remained right around the 2% mark for decades.

It was 2% of disposable income in 1974, when the top marginal tax rate was 70%, and it was 2% in 1989, when the highest rate was 28%. Last year it was 1.9%. This suggests that the way to increase giving is to increase the amount of disposable income people have, and one way to do that would be to lower their taxes. To the extent that higher tax rates reduce disposable income, they will likely only depress giving.

Other Giving USA data going back to 1971 show giving to be remarkably constant as a share of gross domestic product. This figure, too, has remained relatively constant at around 2%, never going below 1.7% or above 2.3%. In 1971, giving was 2.1% of GDP; last year it was 2%. If the goal is to increase giving, the focus should be on raising GDP, not taxes. ...

If nonprofits knew what was good for them, they would be focusing less on preserving the charitable deduction and more on economic growth and wealth creation. As the dreaded fiscal cliff approaches, they should be lobbying for a tax system that lowers rates and eliminates loopholes, allowing capital—including charitable capital—to flow to its most productive use. The resulting prosperity would do much more for charities than preserving their own special carve-out from a punitive tax structure.

Mann: Housing and the Mortgage Interest Deduction

Roberta F. Mann (Oregon), Housing and the Mortgage Interest Deduction, in Tax Law and Policy: Beyond Economic Efficiency (David A. Brennan, Karen B. Brown & Darryl Jones, eds. Aspen, 2013):

The deduction for qualified residence interest (QRI) is the second largest individual tax expenditure, after the exclusion for employer provided health insurance. While homeownership has long been viewed as a social good, the QRI deduction has faced criticism. Commentators have argued that it is not consistent with the structure of the income tax system; it is economically inefficient, skewing investment towards private residences; it is inequitable, discriminating against low income people (a group that may disproportionately include people of color), and certain religious minorities; and it is environmentally unsound, encouraging sprawl, excessive energy use, and inefficient transportation choices. In late 2008, the entire world reeled from a global economic crisis, which started with a housing bubble inflated by excessive debt facilitated by subprime mortgages and spread around the economy by mortgage backed securities.

Assuming that homeownership provides useful societal benefits, this chapter will explore how the tax system could create incentives for homeownership while avoiding the problems of the QRI deduction. The chapter will examine options including adding a homeownership benefit to the standard deduction, creating a refundable housing credit, providing a deduction for contributions to a housing savings account, and including a shelter credit available for renters and homeowners alike. The chapter will also address whether the housing benefit should be linked to debt financing. The ideal benefit would be equitably distributed, would not unduly influence housing prices, would not encourage excessive debt, and would respect environmental as well as social goals.

Tax Foundation: What Is the Evidence on Taxes and Growth?

Tax Foundation:  What Is the Evidence on Taxes and Growth?:

[W]hat does the academic literature say about the empirical relationship between taxes and economic growth? While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy. In this review of the literature, I find twenty-six such studies going back to 1983, and all but three of those studies, and every study in the last fifteen years, find a negative effect of taxes on growth. Of those studies that distinguish between types of taxes, corporate income taxes are found to be most harmful, followed by personal income taxes, consumption taxes and property taxes. ...

[T]he lesson from the studies conducted is that long-term economic growth is to a significant degree a function of tax policy. Our current economic doldrums are the result of many factors, but having the highest corporate rate in the industrialized world does not help. Nor does the prospect of higher taxes on shareholders and workers. If we intend to spur investment, we should lower taxes on the earnings of capital. If we intend to increase employment, we should lower taxes on workers and the businesses that hire them.

Forbes: Boehner, Buffett, Obama, and History All Support Millionaire Only Taxes

Forbes:  Strange Bedfellows: Boehner, Buffett and Obama All Support Millionaire Only Taxes, by Janet Novack:

House Speaker John Boehner (R-Ohio) said today that if Republicans can’t reach a deal with President Barack Obama to avert the fiscal cliff, his “plan B” is to have the House vote on a bill to allow tax rates to go up only for families earning more than $1 million.  Sure, it’s a negotiating and public relations gambit. And yes, the White House, Democrats and even some of his own Conservative members immediately trash-talked this back-up plan. But in asserting that millionaires should be taxed differently than the almost rich, Boehner at least has history on his side.

During the first 60 years of the nearly 100-year-old income tax, the top marginal tax rate was never imposed on couples earning less than $1 million in 2011 dollars, calculations by the Tax Foundation show. The original top rate of 7% in 1913 applied only to income over $500,000—more than $11 million in today’s dollars.  Most famously, points out historian Joseph J. Thorndike, Franklin Roosevelt pushed through a top marginal rate on income over $5 million (more than $80 million today) —a cut-off so high that it applied to just one taxpayer. “They had plenty of (rich) people to hate.  They didn’t need to pick on John D. Rockefeller all by himself,” says Thorndike, whose book, Their Fair Share: Taxing the Rich in the Age of FDR, is due out next month.

Stack: Interpreting Regulations

Kevin M. Stack (Vanderbilt), Interpreting Regulations, 111 Mich. L. Rev. 355 (2012):

The age of statutes has given way to an era of regulations, but our jurisprudence has fallen behind. Despite the centrality of regulations to law, courts have no intelligible approach to regulatory interpretation. The neglect of regulatory interpretation is not only a shortcoming in interpretive theory but also a practical problem for administrative law. Canonical doctrines of administrative law — Chevron, Seminole Rock/Auer, and Accardi — involve interpreting regulations, and yet courts lack a consistent approach.

This Article develops a method for interpreting regulations and, more generally, situates regulatory interpretation within debates over legal interpretation. It argues that a purposive approach, not a textualist one, best suits the distinctive legal character of regulations. Administrative law requires agencies to produce detailed explanations of the grounds for their regulations, called statements of basis and purpose. Courts routinely use these statements to assess the validity of regulations. This Article argues that these statements should guide judicial interpretation of regulations as well. By relying on these statements as privileged sources for interpretation, courts not only grant deference to agencies but also treat these statements as creating commitments with respect to a regulation’s meaning. This approach justifies a framework for interpreting regulations under Chevron, Seminole Rock/Auer, and Accardi that is consistent with the deferential grounding of these doctrines, and provides more notice to those regulated than does relying on the regulation’s text alone.

This Article also shows how regulatory purposivism constitutes a new foothold for Henry Hart and Albert Sacks’s classic legal process account of purposivism. Hart and Sacks’s theory is vulnerable to the criticism that discerning statutory purpose is elusive because statutes do not often include enacted statements of purpose. Regulatory purposivism, however, avoids this concern because statements of basis and purpose offer a consistent and reliable source for discerning a regulation’s purpose. From this perspective, the best days for Hart and Sacks’s legal process theory may be ahead.

1986-Style Tax Reform Would Cement Obama's Legacy as a Transformational President

Wall Street Journal op-ed:  Why Obama Dropped His $250,000 Tax Target, by Will Marshall (President, Progressive Policy Institute):

Tax fairness matters, but economic growth also is a priority. A growing economy is the best way to raise revenue for deficit and debt reduction. Otherwise we would have to raise taxes on the middle class or make truly drastic cuts in public spending.

To promote growth, most economists favor eliminating or limiting the preferences that honeycomb both the individual and corporate tax codes and distort economic decisions by steering investment toward activities favored by the government rather than markets. By reducing the effective tax rate on people and businesses, these preferences also keep upward pressure on rates, lest government revenues fall off. Conversely, closing loopholes enables the government to lower rates. ...

A sweeping, 1986-style tax reform next year—covering both corporate and personal taxes—would eclipse any short-term partisan victory Mr. Obama might win this year. It would promote economic growth, competitiveness, equity and simplicity while tempering the entitlement cuts that also will be necessary to reduce the nation's debt. Alongside his landmark health-care reform bill, tax reform would cement Mr. Obama's legacy as a transformational president.

The Constitutionality of Grover Norquist's Tax Pledge

Stephen Patrick Cain Anderson (J.D. 2013, Penn State), The Constitutionality of Grover Norquist's Tax Pledge:

This paper analyzes the constitutionality of Grover Norquist's Americans for Tax Reform Tax Pledge. Specifically, it looks at whether taking this pledge 1) violates the duties inherent in a congress member's oath of office and 2) runs afoul of the non-delegation doctrine.

Telman: Law Schools Should Be More Like Liberal Arts Colleges

Jeremy Telman (Valparaiso) of our sister ContractsProf Blog has a thoughful series of posts on law school curricular reform. My favorite comment:

When I was a doctoral student, I was befriended by an emeritus professor who had taught at that institution for nearly seventy years.  He was a historian of international reknown in his field.  He had also chaired the department, been actively engaged in university administration and was the first chair of the Ivy League athletic eligibility committee. In addition, he had served for thirty-two years as the Mayor of the small town abutting the university.  

When I came to know him, he was at work on a history of the university.  He told me that the most important change that he had experienced during his career, which spanned most of the 20th century, was that the department had changed from one in which what mattered most was the esteem in which one was held by one's colleagues and students to one in which what mattered most was the esteem in which one was held by professors at other universities.  The change saddened him.  It diminished the place's sense of itself as a community defined by a spirit of collegiality and common purpose. 

I would like to see some law schools abandon the hope of being imitatio Harvards in favor of becoming imitatio Haverfords (or Oberlins or Grinnells, etc.).  Moreover, such a change is what our students need.  Increasingly, our students come to us without the benefit of a traditional liberal arts education that prepares them for the challenges of legal practice.  Legal education needs to provide that grounding in basic reasoning, professional development, and writing skills before we throw them into the world of practice.

• The Problem (Dec. 7, 2012)
• Teaching Materials (Dec. 10, 2012)
• The Costs of Change (Dec. 11, 2012)
• The Place of Scholarship in the 21st Century Legal Academy (Dec. 12, 2012)
• A Coordinated Curriculum and Academic Freedom (Dec. 13, 2012)
• Preparing the Academically Adrift for Practice (Dec. 14, 2012)

Schneider: A New Tax Regime for U.S. Expatriates

Bernard Schneider (Queen Mary, University of London School of Law), The End of Taxation Without End: A New Tax Regime for U.S. Expatriates, 32 Va. Tax Rev. ___ (2012):

The United States is the only major country to tax its citizens and foreigners admitted as permanent residents (lawful permanent residents (LPRs) colloquially known as “Green Card holders”) on their worldwide income, regardless of residence. This article gives an overview of the history of the United States’s approach. It then reviews the different types of expatriates, their connection to the United States, and their tax and reporting burdens. This article discusses the various justifications for the worldwide taxation of nonresidents and concludes that it is no longer justified. In an era of economic globalization and increased personal mobility, worldwide taxation of nonresidents is increasingly dysfunctional. It is challenging to justify on economic or moral grounds; it is difficult, if not impossible, to enforce against many expatriates; and it sends the wrong message regarding the value of citizenship. This article proposes that the United States follow the approach of several other countries and eliminate the worldwide taxation of expatriate citizens and LPRs and replace the exit tax on those renouncing U.S. citizenship or relinquishing LPR status with a departure tax regime that would apply to all U.S. citizens and LPRs who emigrate from the United States. It also proposes that the definitions of permanent resident for tax and immigration purposes be aligned. The proposed new tax regime for U.S. expatriates would be more equitable and easier to enforce. It would also be more consistent with international tax norms and the purposes of U.S. nationality and immigration law.

Amending and Terminating Perpetual Conservation Easements

Ann Taylor Schwing (Best, Best & Kreiger, Sacramento), Perpetuity Is Forever, Almost Always: Why It Is Wrong to Promote Amendment and Termination of Perpetual Conservation Easements, 37 Harv. Envtl. L. Rev. ___ (2012):

This article is a response to Jessica Jay's, When Perpetual Is Not Forever: The Challenge of Changing Conditions, Amendment and Termination of Conservation Easements, 36 Harv. Envtl. L. Rev. 1 (2012). When Perpetual Is Not Forever suggests that government entities and land trusts accepting conservation easement donations are free to ignore both federal tax law requirements and the rules that govern administration of charities and the charitable gifts they solicit and accept when amending and terminating perpetual conservation easements. This article explains that, when a conservation easement donor makes a charitable gift of a conservation easement and elects to seek a federal income tax deduction, both the property owner and easement holder become subject to federal law governing the creation, monitoring, amendment, and extinguishment of the easement, as well as state laws that protect charitable gifts on behalf of the public. Accordingly, contrary to the representations made in When Perpetual Is Not Forever, neither property owners nor holders can elect to amend or terminate such perpetual easements pursuant to procedures that are inconsistent with such laws.

Morse: Important Developments in Federal Income Taxation (Dec. 2011 - Nov. 2012)

Edward A. Morse (Creighton), Important Developments in Federal Income Taxation:

This continuing education program covers significant developments in federal income taxation along with a few other interesting or noteworthy tax topics. It is not intended to provide exhaustive coverage, but it offers a selective treatment of items likely to interest practitioners and advisors within a broad range of professional practices. The discussion generally includes events from the prior Institute in December 2011 through November 23, 2012.

SSRN Tax Professor Download Rankings

SSRN has updated its monthly rankings of 750 American and international law school faculties and 3,000 law professors by (among other things) the number of paper downloads from the SSRN database.  Here is the new list (through December 1, 2012) of the Top 25 U.S. Tax Professors in two of the SSRN categories: all-time downloads and recent downloads (within the past 12 months):

 

		All-Time Downloads		Recent Downloads
1	Reuven Avi-Yonah (Mich.)	28,181	Reuven Avi-Yonah (Mich.)	5813
2	Paul Caron (Cincinnati)	21,096	Adam Chodorow (Ariz. St.)	4181
3	Louis Kaplow (Harvard)	19,861	Richard Kaplan (Illinois)	4172
4	Vic Fleischer (Colorado)	17,500	Paul Caron (Cincinnati)	3164
5	James Hines (Michigan)	17,033	Katie Pratt (Loyola-L.A.)	2748
6	D. Dharmapala (Illinois)	16,202	Carter Bishop (Suffolk)	2564
7	Ted Seto(Loyola-L.A.)	16,161	Jen Kowal (Loyola-L.A.)	2448
8	Richard Kaplan (Illinois)	15,586	Bridget Crawford (Pace)	2434
9	Dennis Ventry (UC-Davis)	14,000	Ed Kleinbard (USC)	2323
10	Carter Bishop (Suffolk)	12,428	D. Dharmapala (Illinois)	2187
11	David Walker (Boston U.)	12,354	Ted Seto (Loyola-L.A.)	2125
12	David Weisbach (Chicago)	12,324	Louis Kaplow (Harvard)	2107
13	Katie Pratt (Loyola-L.A.)	12,127	Richard Harvey (Villanova)	2094
14	Chris Sannchirico (Penn)	12,087	David Gamage (UCBerkeley)	2093
15	Francine Lipman (UNLV)	11,778	Wendy Gerzog (Baltimore)	1992
16	Herwig Schlunck (Vand.)	11,546	James Hines (Michigan)	1983
17	Jen Kowal (Loyola-L.A.)	10,910	Erik Jensen (Case Western)	1937
18	Robert Sitkoff (Harvard)	10,779	Dan Shaviro (NYU)	1680
18	Bridget Crawford (Pace)	10,706	David Weisbach (Chicago)	1614
20	Ed McCaffery (USC)	10,640	Brad Borden (Brooklyn)	1582
21	Brad Borden (Brooklyn)	10,522	Heather Field (UC-Hastings)	1540
22	Wendy Gerzog (Baltimore)	10,161	Francine Lipman (UNLV)	1426
23	Dan Shaviro (NYU)	9685	Vic Fleischer (Colorado)	1400
24	Steve Bank (UCLA)	9496	Herwig Schlunck (Vand.)	1392
25	Erik Jensen (Case Western)	8730	Allison Christians (McGill)	1349

Note that this ranking includes full-time tax professors with at least one tax paper on SSRN, and all papers (including non-tax papers) by these tax professors are included in the SSRN data.

Continue reading "SSRN Tax Professor Download Rankings"

Fleischer: How Local Tax Rates Affect High-Income Professionals

New York Times DealBook:  How Local Tax Rates Affect High-Income Professionals, by Victor Fleischer (Colorado):

How sensitive are high-income individuals to marginal tax rates? One challenge in the research is finding good data on the salaries and the behavioral responses of the rich. People tend to hold salary information close to the vest.

But there is one group of highly paid professionals whose salaries and relocation behavior are public: professional athletes. Two new papers in the Journal of Sports Economics use variation in state tax rates to test how sensitive these athletes’ salaries are to state and local taxes.

One paper [Baseball Salaries and Income Taxes: The ‘Home Field Advantage’ of Income Taxes on Free Agent Salaries], by the economists James Alm, Bill Kaempfer and Edward Batte Sennoga, investigates whether differences in state and local individual income taxes in major league baseball cities affects free-agent player salaries. It does. ... The authors’ basic specification finds that each percentage point of an income tax raises free-agent salaries by $21,000 to $24,000. This means that low-tax locales like Florida and Texas have a “home field advantage” in the free-agent market. ...

In the NBA, the luxury tax acts as a more effective constraint on player salaries than it does in Major League Baseball. The second paper [Tax Avoidance: How Income Tax Rates Affect the Labor Migration Decisions of NBA Free Agents], by Nolan Kopkin, a Ph.D. student at Cornell University, looks at the effect that variation in state and local income tax rates have on the labor migration decisions of NBA free agents. The study finds that an increase in the marginal income tax rate leads to a decrease in the average skill of the NBA free agents that migrate to that team. Unlike in baseball, basketball teams in high-tax jurisdictions actually end up with a worse free-agent talent pool, all else equal. ...

These papers do serve as a useful reminder that if the goal is to remedy income inequality, state and local taxes are a weak policy instrument. To the extent that tax policy is used to achieve redistribution, redistribution should take place at the federal level.

Sholk: A Guide to Election Year Activities of § 501(c)(3) Organizations

Continuing a TaxProf Blog tradition, Steven H. Sholk (Gibbons, Newark, NJ) has made available to readers his wonderful 271-page A Guide to Election Year Activities of Section 501(c)(3) Organizations in Tax Strategies for Corporate Acquisitions, Dispositions, Spin-Offs, Joint Ventures, Financings, Reorganizations & Restructurings (PLI 2013).

WSJ: Of Liberals and Tax Loopholes

Wall Street Journal editorial:  Of Liberals and Loopholes:  The Current Tax Code Favors High-Tax States:

One post-election budget surprise has been President Obama's resistance to John Boehner's proposal to get $800 billion in new revenue by closing tax loopholes. Here's one likely reason: the high tax rates of his blue-state Democratic brethren.

One of Mr. Boehner's ideas, taking a cue from Mitt Romney, would impose a limit on annual deductions. During the campaign Mr. Romney suggested a range for a deduction cap, anywhere from $17,000 to $50,000 a year, and many liberal pundits praised the idea on equity grounds.  

Since the affluent tend to itemize their deductions more than do average taxpayers, and since the affluent pay higher marginal tax rates, they tend to benefit more from deductions. Ergo, limit deductions and you raise the effective tax rate (not the marginal rate) of the affluent. (The effective tax rate is the share of total income paid in taxes, while the marginal rate is the tax on the next dollar earned.) Such a reform would help tax efficiency and equity, and the economy would benefit from fewer investment distortions.

But suddenly liberals are having second thoughts, and our guess is that this is because residents of high-tax Democratic-run states are about twice as likely to take advantage of tax loopholes as taxpayers in low-tax states. For example, 44% of Connecticut filers itemize their deductions, but only some 21% of North and South Dakota residents do.

Acevedo: The 100-Year Onslaught on the Tax Code

Arthur Acevedo (John Marshall (Chicago)), Abusive Tax Practices: The 100-Year Onslaught on the Tax Code, 17 Barry L. Rev. 179 (2012):

In 2013, the Internal Revenue Code (“Code”) will mark 100 years. Attacks on the tax policy generally, and on the Code specifically, have formed part of the income tax landscape since the enactment of the Code in 1913. For nearly 100 years, taxpayers have engaged in reasonable, and unreasonable challenges to Congress’ power to tax. Challenges range from legitimate interpretational issues, to quasi-legitimate tax shelter issues, to illegitimate tax protester issues. Taxpayer challenges are motivated by any number of reasons: a desire to equalize the perceived disparity of the income tax laws in relation to one’s particular tax position, a desire to pursue aggressive positions in the absence of explicit authority, or a misplaced belief in the illegitimacy of the Code. A number of factors combine to create an environment ripe for taxpayer challenges and for self-executing equalization by taxpayers - voluntary tax assessments, varying tax preferences, fluctuating tax policies, and ambiguous language. These factors influence a faction of taxpayers, tax protesters and aggressive tax participants, into behavior that is questionable and destructive to the tax policy goals of simplicity, fairness, efficiency and revenue sufficiency.

This paper explores the actions taken by tax protesters and aggressive tax planners, the response by Congress, and examines whether Congress has taken sufficient action to curb abusive taxpayer practices. The thesis of the paper is that Congress’ fainthearted responses to abusive taxpayer conduct is untimely, inefficient, and ineffective. Congress’ weak responses since the inception of the Code have contributed to a culture of income tax avoidance and a growing sense of exasperation by taxpayers with the income tax laws. The paper makes two proposals, one to address tax protesters, and the other to address unintended tax benefits as a result of aggressive tax planning resulting.

NPR: Why Not Raise Capital Gains Taxes?

NPR, Why Not Raise Capital Gains Taxes?:

As a part of the series, "Why Not," Tell Me More is looking at policies that were once untouchable but now may be on the table. Today, NPR Correspondent Tamara Keith and Emory Law Professor Dorothy Brown dig into the pros-and-cons of raising taxes on capital gains and dividends.

Four Simple Rules for Giving to Colleges

Wall Street Journal:  An Introduction to College Giving:

Four simple rules to make sure donations to your alma mater have the biggest impact:

1. Add modest restrictions to the gift.
2. Give a nonmonetary donation.
3. Consider donating to a school you didn't attend.
4. Compare the tax treatment of different gifts.