TaxProf Blog

Free Live Webcast Today: Pepperdine/Tax Analysts Symposium: Tax Advice for the Second Obama Administration

Check out the free live webcast of the symposium on Tax Advice for the Second Obama Administration beginning at 8:45 a.m. PST. And follow live tweets using the #ObamaTaxAdvice hashtag via @SoCalTaxProf, @PeppLawReview, and @TaxAnalysts. Questions for speakers can be tweeted to @PeppLawReview. 

Introduction and Welcome

• Deanell Tacha (Dean, Pepperdine)
• Chris Bergin (President, Tax Analysts)

Keynote Address:  Michael Graetz (Columbia)

Occupy the Tax Code:  The Buffett Rule, the 1%, and the Fairness/Growth Divide

Moderator:      David Brunori (Tax Analysts)

Papers:           Dorothy Brown (Emory), The 535 Report: A Pathway to Fundamental Tax Reform
                         Francine Lipman (UNLV), Access to Tax InJustice
                         Kirk Stark (UCLA) (with Eric Zolt (UCLA)), Tax Reform and the American Middle Class

Commentary:  Bruce Bartlett (New York Times), David Miller (Cadwalader, New York)

Estate and Gift Tax

Moderator:      Paul Caron (Pepperdine)

Papers:           Ed McCaffery (USC), Distracted from Distraction by Distraction: Reimagining Estate Tax Reform
                         Grayson McCouch (San Diego), Who Killed the Rule Against Perpetuities?
                         Jim Repetti (BC) (with Paul Caron (Pepperdine)), Occupy the Tax Code: Using the Estate Tax to Reduce Inequality

Commentary:  Joe Thorndike (Tax Analysts)

Luncheon Address:   David Cay Johnston (author/journalist)

Business/International Tax #1

Moderator:     Tom Bost (Pepperdine)

Papers:          Steve Bank (UCLA), The Globalization of Corporate Tax Reform
                         Karen Burke (San Diego), Passthrough Entities: The Missing Link in Business Tax Reform
                         Martin Sullivan (Tax Analysts)

Commentary:  Michael Schler (Cravath, New York)

Business/International Tax #2

Moderator:     Khrista McCarden (Pepperdine)

Papers:          Reuven Avi-Yonah (Michigan), Corporate and International Tax Reform: Proposals for the Second Obama Administration
                        Allison Christians (McGill), Putting the Reign Back in Sovereign: Advice for the Second Obama Administration
                        Susan Morse (UC-Hastings), The Transfer Pricing Regs Need a Good Edit

Commentary:  Robert Goulder (Tax Analysts)

Closing Remarks:  What Have We Learned Today?:   David Cay Johnston (author/journalist)

University of Auckland Seeks to Hire a Tax Prof

The University of Auckland, Faculty of Business and Economics, seeks to hire a Lecturer/Senior Lecturer in Tax and Business Law:

The Department of Commercial Law is looking to offer a senior lecturer/lecturer career in the field of tax and business law. The successful applicant would undertake teaching in commercial law generally but would have a particular interest in taxation law and policy. You would teach at the highest level in New Zealand's premier postgraduate (including on the Master of Taxation Studies, ranked by Eduniversal as the 11th best specialist tax masters degree worldwide) and undergraduate tax and business law courses.

An ideal candidate would have, in addition to tax expertise, the ability to research and teach in other areas of particular significance to business such as company and securities law. A passion to share knowledge with students and with the business community is critical.

The University of Auckland enjoys an outstanding reputation for its scholarship, teaching and research. It is ranked by the Times Higher Education QS World University Rankings 2012, as: the top ranked university in New Zealand in the top one percent of universities worldwide (ranked 84th in the world) 76th in employer ranking. ...

Queries relating to the advertisement must be referred to Prof Craig Elliffe. Applications close 28th February 2013.

IRS Releases Final FATCA Regs

The Treasury Deparment and the IRS yesterday released final regulations under the Foreign Account Tax Compliance Act. The regulations:

• Build on intergovernmental agreements that foster international cooperation. The Treasury Department has collaborated with foreign governments to develop and sign intergovernmental agreements that facilitate the effective and efficient implementation of FATCA by eliminating legal barriers to participation, reducing administrative burdens, and ensuring the participation of all non-exempt financial institutions in a partner jurisdiction. In order to reduce administrative burdens for financial institutions with operations in multiple jurisdictions, the final regulations coordinate the obligations for financial institutions under the regulations and the intergovernmental agreements.
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• Phase in the timelines for due diligence, reporting and withholding and align them with the intergovernmental agreements. The final regulations phase in over an extended transition period to provide sufficient time for financial institutions to develop necessary systems. In addition, to avoid confusion and unnecessary duplicative procedures, the final regulations align the regulatory timelines with the timelines prescribed in the intergovernmental agreements.

• Expand and clarify the scope of payments not subject to withholding. To limit market disruption, reduce administrative burdens, and establish certainty, the final regulations provide relief from withholding with respect to certain grandfathered obligations and certain payments made by non-financial entities.

• Refine and clarify the treatment of investment entities. To better align the obligations under FATCA with the risks posed by certain entities, the final regulations: (1) expand and clarify the treatment of certain categories of low-risk institutions, such as governmental entities and retirement funds; (2) provide that certain investment entities may be subject to being reported on by the FFIs with which they hold accounts rather than being required to register as FFIs and report to the IRS; and (3) clarify the types of passive investment entities that must be identified and reported by financial institutions.

• Clarify the compliance and verification obligations of FFIs. The final regulations provide more streamlined registration and compliance procedures for groups of financial institutions, including commonly managed investment funds, and provide additional detail regarding FFIs’ obligations to verify their compliance under FATCA.

Updates and further information on FATCA can be found by visiting the FATCA page at Treasury.gov or IRS.gov.

GAO: IRS Faces Challenges Providing Service to Taxpayers

The Government Accountability Office has released IRS Faces Challenges Providing Service to Taxpayers and Could Collect Balances Due More Effectively (GAO-13-156):

While there have been efficiency gains and efforts to improve service, the IRS faced challenges providing telephone service and responding to correspondence, continuing trends experienced in recent years. In 2012, 82 percent of individual taxpayers filed their returns electronically (e-filed), reducing IRS's processing costs. IRS also increased calls answered using automated service and added a variety of self service tools, which helped gain efficiencies. However, IRS's level of telephone service (the percentage of callers seeking live assistance who receive it) declined to 68 percent. In addition, of the 21 million pieces of paper correspondence IRS received, about 40 percent were considered overage (meaning that IRS did not respond within 45 days of receipt), an increase compared to last year. While IRS plans to continue to pursue efficiency gains, its strategy for future years does not specifically address how it plans to reverse these negative trends. Reversing the declines in telephone and correspondence services may require IRS to consider difficult tradeoffs, such as reassessing which phone calls IRS should answer with a live assistor and which it should not because automated services are available.

TIGTA: Prisoner Tax Fraud Claims Continue to Skyrocket

The Treasury Inspector General for Tax Administration yesterday released  Further Efforts Are Needed to Ensure the Internal Revenue Service Prisoner File Is Accurate and Complete (2013-40-011):

Refund fraud committed by prisoners remains a significant problem for tax administration. The number of fraudulent tax returns filed by prisoners and identified by the IRS has increased from more than 18,000 tax returns in Calendar Year 2004 to more than 91,000 tax returns in Calendar Year 2010. The refunds claimed on these tax returns increased from $68 million to $757 million. Although the IRS prevented the issuance of $722 million in fraudulent tax refunds during Calendar Year 2010, it released more than $35 million. Figure 1 shows the number of fraudulent tax returns identified by the IRS as filed by prisoners in Calendar Years 2004 through 2010 and the related refund information.

Figure 1:  Fraudulent Tax Returns Filed by Prisoners for Calendar Years 2004–2010

Calendar Year	Fraudulent Tax Returns	Refunds Claimed (Millions)	Refunds Prevented (Millions)	Refunds Issued (Millions)
2004	18,103	$68.1	$54.6	$13.4
2005	21,254	$80.4	$67.5	$12.8
2006	N/A	N/A	N/A	N/A
2007	37,447	$165.9	$136.6	$29.2
2008	47,898	$190.4	$162.1	$28.3
2009	44,944	$295.1	$256.0	$39.1
2010	91,434	$757.6	$722.4	$35.2

Staudt Presents The Supercharged IPO Today at UCLA

Nancy Staudt (USC) presents The Supercharged IPO (with Victor Fleischer (Colorado)) at UCLA today as part of its Tax Policy and Public Finance Colloquium hosted by Jason Oh and Kirk Stark:

In this article, we investigate a new and widely discussed financial innovation: the supercharged initial public offering (IPO). A supercharged IPO differs from a conventional IPO because it involves a contract provision that enables the original owners of a firm to extract large amounts of money from the company in the post-IPO period. Supercharged IPOs have generated substantial debate and controversy but no scholar or team of scholars has investigated why the supercharged IPO emerged and how it has spread across industries and geographic areas. We amassed a large dataset of IPOs and empirically investigate these questions. We find the motivation for pursuing this new deal structure relates to the parties’ desire to take advantage of tax arbitrage opportunities, and not to a devious plan by owner-founders to steal from unknowing public investors as many critics have argued. Our results also suggest, contrary to the existing literature, that while innovation in the IPO context is an on-going process—it tends to spike when the economy performs poorly. With respect to the process of use and diffusion, we find that the earliest innovators are firms widely viewed to be aggressive and flexible, such as those organized in tax havens. Over time, however, the diffusion process is best explained by two factors: elite lawyers and professional networks—especially those located in the New York City region. Owner-founders who seek to go public with the help of an IPO, tend to supercharge their IPO when their hire elite New York City lawyers.

Kane Presents Tax Treaties as Novel Tools for Development Finance Today at Northwestern

Mitchell Kane (NYU) presents Bootstraps and Poverty Traps: Tax Treaties as Novel Tools for Development Finance, 29 Yale J. on Reg. 255 (2012), at Northwestern today as part of its Advanced Topics in Taxation Colloquium Series hosted by Herbet Beller, Thomas Brennan, David Cameron, Philip Postlewaite, and Robert Wootton:

Current shortfalls in financing required for full achievement of the Millennium Development Goals have led to calls for consideration of novel means of development finance. This Article describes such a novel means of development finance based on a radical rethinking of the typical allocation of tax entitlements in bilateral income tax treaties. The central proposal is for a developing country to surrender, by tax treaty, a portion of its taxing authority in exchange for an upfront capital transfer from the developed country. The developed country would then recoup some portion of the upfront capital transfer through the exercise of the expanded authority secured under the treaty. The Article describes a number of ways in which the proposal represents an advance over existing forms of development finance, including for example, effects on administrative burdens, tax competition, and risk shifting. The Article also addresses a number of potential criticisms of the proposal, relating especially to issues of sovereignty and enforceability.

Mulligan: Tax Expenditure Estimates Understate True Revenue Loss From Health Insurance Exclusion

New York Times:  Tax Exclusions for Health Insurance, by Casey B. Mulligan (University of Chicago, Department of Economics):

A typical approach to estimating the size of the health subsidy implicit in the tax exclusions is to estimate the amount of federal personal income tax revenue that is lost because of the income that escapes tax. ... However, the income-tax approach underestimates the amount of the exclusion, because health services are often excluded from many other taxes. ...

More study is needed to quantify accurately the government’s effect on the health market. But we can be sure that public policy has served to enlarge the health industry at the expense of others and that previous estimates do not fully appreciate the magnitude of the distortion.

Zimmerman: Should Law Professors Have a Continuing Practice Experience (CPE) Requirement?

Emily Zimmerman (Drexel), Should Law Professors Have a Continuing Practice Experience (CPE) Requirement?:

This article considers whether law professors should have a Continuing Practice Experience (CPE) requirement, just as lawyers in most jurisdictions have a Continuing Legal Education (CLE) requirement. In the face of criticisms of legal education for failing to prepare students to be practicing lawyers and for generating scholarship that is of little to no use to practicing lawyers and judges, CPE offers one way to facilitate a connection between legal education and law practice. This article considers the potential benefits of CPE (and reasons why law professors might be resistant to CPE). The article also discusses ways in which the American Bar Association’s Standards for the Accreditation of Law Schools and the Association of American Law Schools’ Statement of Good Practices by Law Professors could be revised to adopt (or, at least, endorse) CPE. Finally, the article addresses two questions relating to the development of a CPE requirement: specifically, what types of activity should “count” as CPE and how much of such activity should law professors have to engage in?

Forman & Mackenzie: The U.S. and Australian Pension Systems

Jonathan Barry Forman (Oklahoma) & Gordon Mackenzie (University of New South Wales, Australian Taxation Studies Program), Optimal Rules for Defined Contribution Plans: What Can We Learn from the U.S. and Australian Pension Systems?, 66 Tax Law. ___ (2013):

Both the United States and Australia have multi-pillar retirement systems that include a public component and a private component. Increasingly, the private component consists of a defined contribution plan. At the outset, this paper provides an overview of the retirement systems of the U.S. and Australia. Next, this paper compares the rules governing defined contribution plans in the U.S. and Australia. In particular, this paper focuses on the rules governing the contribution, accumulation, and distribution stages; and it discusses which public policies will best help workers maximize their defined contribution plan accumulations and, consequently, the retirement income that they will eventually receive. Ultimately, this paper develops recommendations for the optimal rules for defined contribution plans in the U.S., Australia, and around the world.

Rosenzweig: Integrating Tax and Development Policy

Adam H. Rosenzweig (Washington U.), Integrating Tax and Development Policy (Jotwell) (reviewing Mitchell Kane (Virginia), Bootstraps and Poverty Traps: Tax Treaties as Novel Tools for Development Finance, 29 Yale J. on Reg. 255 (2012)):

A quiet, but powerful, movement seems to be emerging in the field of international tax – the explicit recognition that development policy is integral to any analysis of international tax policy. Put differently, if the initial distribution of resources affects the return on resources, which itself affects the taxation of resources and thus the provision of public goods (which themselves feed back into the return on resources), distribution must be incorporated into the efficiency analysis of international taxation rather than thought of as a second, unrelated “fairness” step. Mitchell Kane contributes to this evolution in his thoughtful new article. ... [E]xpressly incorporating distribution of resources, capital flows, and public goods into the tax competition analysis, and specifically into the tax treaty analysis, in the sophisticated manner Kane does, represents another valuable step in this important evolution of international tax law scholarship.

Burk: Still More on What Matters Most

The Faculty Lounge:  Still More on What Matters Most, by Bernard A. Burk (North Carolina):

[L]et’s all be clear that there is in fact loads of misery in the post-law-school world.  There are literally tens of thousands of recent law-school graduates who made six-figure investments in their legal educations, many of them incurring huge nondischargeable loans to do so, who cannot find full-time, long-term employment making any substantial use of what they paid so dearly in time and treasure to acquire.  This distress is by no means evenly distributed across the graduates of all law schools, but it is having real and significant effects at almost all of them, including many very well and thoughtfully administered institutions such as the one where I am fortunate to work.  This is nothing short of tragic, and of course it has to be addressed to reduce the numbers of future victims of this misfortune.  (And we should never forget that prospective reform of the kind currently under discussion in many quarters does little for those already caught in the riptide of the shrinking law-job market.  Disaster relief for those already swept out to sea will be the subject of a future post, and is something we should all be thinking about as well.)

Continue reading "Burk: Still More on What Matters Most"

Estate Tax Spousal Portability

Nathan L. Wadlinger (LL.M. (Taxation) 2013, NYU), The Portability Pill: Examining the Trial Stages of Federal Estate and Gift Tax Spousal Portability, 47 Real Prop. Tr. & Est. L.J. 367 (2012):

Congress enacted portability as part of the Tax Relief Act of 2010, for the first time allowing the transfer of a decedent spouse’s estate tax exclusion amount to their surviving spouse. However, portability is set to expire at the end of 2012. In anticipation of legislation from Congress, this Article explains how the portability provisions work, and analyzes the successes and failures in reaching the policy goals behind portability. For example, while Congress aimed to provide a simple alternative to estate planning through portability, basic estate planning continues to accomplish superior results in many cases. Further, portability may complicate estate administration because estates that fall under the estate tax exclusion amount must file Form 706 merely to preserve the decedent spouse’s exclusion amount. The Article acknowledges portability as an important step toward achieving policy goals of recognizing married couples as a single economic unit and minimizing the need for estate planning. However, portability fails to fully achieve these policy goals and further legislation is needed to enhance simplicity and certainty of the outcome for those who elect to use portability.

Tax Court: Section 152(c)(2)(A) Does Not Violate Constitutional Rights of Navajo Tribal Elder

Begay v. Commissioner, T.C. Memo. 2013-17 (Jan. 16, 2013):

Petitioner is a tribal elder of the Navajo Indian Nation. ... Petitioner claimed a dependency exemption deduction for TD, head of household filing status, the earned income credit, and the child tax credit. Petitioner identified TD as her nephew on her 2009 Federal income tax return. ... .

TD is a member of the Navajo Indian Nation and is a clan relative of petitioner. In the Navajo Indian Nation, a clan relative is another member of the Navajo Indian Nation and certain clan obligations exist between clan relatives. Petitioner supports TD as a result of her clan obligation. TD is not a child of petitioner or a descendant of such child as described in § 152(c)(2)(A). TD is not a brother, sister, stepbrother, or stepsister of petitioner or a descendant of any such relative as described in § 152(c)(2)(B). With respect to TD, petitioner met the requirements set forth in § 152(c)(1)(B), (C), (D), and (E). In the notice of deficiency respondent disallowed petitioner’s dependency exemption deduction, head of household filing status, earned income credit, and child tax credit. ...

Although petitioner concedes that TD is not her qualifying child under § 152(c)(2), she argues that the exclusion from the § 152(c)(2) relationships of certain obligatory clan-based relationships in Navajo culture violates her constitutional rights under both the Free Exercise Clause of the First Amendment to the Constitution and the Fifth and Fourteenth Amendments to the Constitution. According to petitioner, in Navajo culture and tradition children are not only children of the parents; they are also children of the clan. Petitioner submits that a Navajo clan consists of the first clans of the child’s mother, father, maternal grandfather, and paternal grandfather and that the clan relationship may extend beyond the foregoing if, for example, the child is adopted. ...

Petitioner argues that the failure of the § 152(c)(2) relationship classification to recognize TD as her qualifying child unreasonably burdens her religious rights. Respondent does not challenge either the existence of petitioner’s clan relationships and obligations or that such obligations to clan relatives stem from the Navajo religion. ...

The § 152(c)(2) relationship classification does not condition petitioner’s receipt of tax benefits on her forgoing her clan obligations to TD or force her to choose between following her clan obligations to TD and receiving tax benefits. Furthermore, the § 152(c)(2) relationship classification does not deny petitioner tax benefits because she fulfills her obligations to TD or force her to abandon her clan obligations to TD by threat of civil or economic sanctions. Regardless of petitioner’s ineligibility for tax benefits such as the earned income credit, she is at liberty to fulfill her clan obligations to TD. Petitioner’s argument for the burden on her religious rights is, instead, financial hardship and continuing Navajo child poverty. However, the Supreme Court has rejected the notion that a taxpayer’s free exercise of her religious beliefs is somehow not fully realized unless it is subsidized by tax benefits such as the earned income credit.

(Hat tip; Bob Kamman.)

Heriot: The Sad Irony of Affirmative Action

National Affairs:  The Sad Irony of Affirmative Action, by Gail Heriot (San Diego):

The biggest change since Grutter, though, has nothing to do with Court membership. It is the mounting empirical evidence that race preferences are doing more harm than good — even for their supposed beneficiaries. If this evidence is correct, we now have fewer African-American physicians, scientists, and engineers than we would have had using race-neutral admissions policies. We have fewer college professors and lawyers, too. Put more bluntly, affirmative action has backfired. ...

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Listokin Presents Tax Expenditure Salience Today at Toronto

Yair Listokin (Yale) presents Tax Expenditure Salience (with Jacob Goldin (Ph.D. Candidate (Economics), Princeton) at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series hosted by Ben Alarie:

We provide survey evidence regarding taxpayer perceptions of two important tax expenditures — the charitable contribution deduction (CD) and the home mortgage interest deduction (HMID). We find that taxpayers have a flawed understanding of both programs. Taxpayers underestimate their eligibility for tax benefits for giving charitable gifts. Conditional on being eligible for CD, taxpayers also underestimate the size of the tax benefits. For the HMID, there are many eligible taxpayers who do not believe they receive a benefit, and many ineligible taxpayers who falsely believe they receive one. Conditional on qualifying for HMID, taxpayers underestimate the size of the tax benefits. Errors are prevalent even in the highest income categories. The results cast doubt on conventional understandings of the elasticity of charitable giving and home purchasing to tax expenditures. Moreover, the results suggest that even salient tax expenditures may be a particularly flawed means of subsidizing desirable behavior. 

Merritt: Law School Applications, Starting Salaries (But Not Tuition) Sink to Pre-1985 Levels

Deborah Jones Merritt (Ohio State), Historic Levels:

According to the Law School Admission Council, about 68,000 students applied for spots in this fall's entering class. Almost half way through the current admission cycle, it looks like about 53,000 students will apply for the fall 2013 class. When did law schools last see that number of applicants?

Not in any year since 1983, the earliest year for which I can find data. ... The lowest number of applicants recorded during the last thirty years was in 1985, when only 60,338 people competed for 40,796 spots. At this point in the admission cycle, it's hard to believe that applicants for fall 2013 will top 60,000 -- or even 55,000. ...

When 60,338 people applied to law school in fall 1985, the median tuition at a private school was $7,385. Median in-state tuition at public law schools was just $1,792. If those figures had risen with inflation, they would be $15,801 at private schools today and $3,834 at public ones. Instead, the median sticker price at private schools is two-and-a-half times as high, while it's five times higher at public institutions.

Now here's the real kicker:  NALP has just published graphs showing that the median reported salary for full-time entry level jobs (those held nine months after graduation) has fallen back to 1985 levels when adjusted for inflation. That figure, of course, is for graduates who were lucky enough to land full-time jobs; just 69.8% of 2011 grads reported a full-time job of any kind. ...

In constant dollars, law school costs two-and-a-half to five times more than it did in 1985. Yet the degree offers a 1985-level starting salary for the average graduate -- if that graduate can find a full-time job. How many people will apply for that deal?

9th Circuit: The Tax Court, the APA, and Innocent Spouse Relief

Wilson v. Commissioner, No. 10-72754 (9th Cir. Jan. 15, 2013):

Affirming the Tax Court’s grant of innocent spouse relief under § 6015, the panel held that the Tax Court properly reviewed new evidence outside the administrative record and correctly applied a de novo standard of review in determining the taxpayer’s eligibility for equitable relief based on the text, structure, and legislative history of the statute.

Judge Bybee dissented. He would hold that, because the Tax Court is a “reviewing court” for purposes of the judicial review provisions of the Administrative Procedure Act, the Tax Court can only review the Secretary of the Treasury’s exercise of discretion for an abuse of discretion.

(Hat Tip: Bob Kamman.)

TIGTA: IRS Has 60% Error Rate in Policing Noncash Charitable Contribution Deduction

The Treasury Inspector General for Tax Administration yesterday released Many Taxpayers Are Still Not Complying With Noncash Charitable Contribution Reporting Requirement (2013-40-009):

TIGTA estimates more than 273,000 taxpayers claimed approximately $3.8 billion in potentially erroneous noncash charitable contributions in Tax Year 2010, which resulted in an estimated $1.1 billion reduction in tax. ... IRS controls are not sufficient to ensure taxpayers are complying with noncash charitable contribution reporting requirements. Statistical samples of Tax Year 2010 tax returns that claimed more than $5,000 in noncash charitable contributions showed that approximately 60 percent of the taxpayers did not comply with the noncash charitable contribution reporting requirements. These taxpayers claimed noncash contributions totaling approximately $201.6 million. Taxpayers who donate motor vehicles must attach a Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to their tax returns. However, the IRS is still not effectively identifying taxpayers who are not complying with reporting requirements for donations of motor vehicles.

• Accounting Web, TIGTA to IRS: Get Tough on Noncash Charitable Contributions
• Bloomberg, Donors Claim $1.1 Billion Skirting Tax Laws, Audit Says
• Washington Examiner, Bad Santa? Taxpayers Overestimate Charitable Giving, Get Undeserved Tax Refunds
• Washington Post, IRS Failing to Enforce Reporting Requirements for Charitable Contributions

Galler: Everything You Always Wanted to Know About Farid But Were Afraid to Ask

Linda Galler (Hofstra), Everything You Always Wanted to Know About Farid But Were Afraid to Ask, 13 Fla Tax Rev. 461 (2012):

If you are or have been a student of federal income tax, chances are that you have studied Farid-Es-Sultaneh v. Commissioner, 160 F.2d 812 (2d Cir. 1947), a case addressing a wife’s tax basis in stock received under the terms of a prenuptial agreement. This opinion is included in most basic tax casebooks and is frequently cited by tax scholars and practitioners for the black letter principle that it espouses. Over the last year or so, I have embarked on an archaeology project of sorts, searching for the story behind the case. This article reflects the results of that journey.

The research project resulted in a rather surprising find, however. The facts placed before, and relied upon by, the courts in Farid were not the real facts. The facts as they actually occurred would have resulted in a completely different outcome! On a broader level, the lessons from this discrepancy have implications for many fields of legal study. These are discussed and analyzed in the article.

After describing the differences between the fictional version, which the lower and appellate courts relied upon in reaching a decision favorable to Ms. Farid, and the real version, the article explores the possible motives of counsel (for both sides) in stipulating to facts that were untrue. It concludes that strategic advantage probably induced them to agree to the facts. The article then considers the broader implications of counsel’s actions with respect to the disparity in the contexts of substantive tax law, litigation strategy generally and the constraints of the rules of lawyers’ ethics.

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 January 1, 2013) 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.)	28,675	Reuven Avi-Yonah (Mich.)	5969
2	Paul Caron (Cincinnati)	21,304	Adam Chodorow (Ariz. St.)	4299
3	Louis Kaplow (Harvard)	20,047	Richard Kaplan (Illinois)	4250
4	Vic Fleischer (Colorado)	17,602	Paul Caron (Cincinnati)	3226
5	James Hines (Michigan)	17,167	Gregg Polsky (N. Carolina)	3005
6	Ted Seto (Loyola-L.A.)	16,416	Katie Pratt (Loyola-L.A.)	2843
7	D. Dharmapala (Illinois)	16,326	Carter Bishop (Suffolk)	2541
8	Richard Kaplan (Illinois)	15,972	Bridget Crawford (Pace)	2538
9	Dennis Ventry (UC-Davis)	14,063	Jen Kowal (Loyola-L.A.)	2520
10	Carter Bishop (Suffolk)	12,562	Ed kleinbard (USC)	2363
11	David Walker (Boston U.)	12,481	Ted Seto (Loyola-L.A.)	2292
12	David Weisbach (Chicago)	12,421	David Gamage (UCBerkeley)	2185
13	Katie Pratt (Loyola-L.A.)	12,326	D. Dharmapala (Illinois)	2149
14	Chris Sannchirico (Penn)	12,157	Louis Kaplow (Harvard)	2146
15	Francine Lipman (UNLV)	11,883	James Hines (Michigan)	2017
16	Herwig Schlunck (Vand.)	11,588	Erik Jensen (Case Western)	1942
17	Jen Kowal (Loyola-L.A.)	11,077	Wendy Gerzog (Baltimore)	1910
18	Bridget Crawford (Pace)	10,947	Dan Shaviro (NYU)	1831
18	Robert Sitkoff (Harvard)	10,878	Dick Harvey (Villanova)	1753
20	Ed McCaffery (USC)	10,701	Brad Borden (Brooklyn)	1683
21	Brad Borden (Brooklyn)	10,686	David Weisbach (Chicago)	1628
22	Wendy Gerzog (Baltimore)	10,263	Heather Field (UC-Hastings)	1613
23	Dan Shaviro (NYU)	9919	Vic Fleischer (Colorado)	1424
24	Steve Bank (UCLA)	9564	Allison Christians (McGill)	1370
25	Ed Kleinbard (USC)	8863	Francine Lipman (UNLVl)	1364

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"

2012 Law School Survey of Student Engagement

The Law School Survey of Student Engagement (LSSSE) has released its 2012 Annual Survey Results:

The Law School Survey of Student Engagement focuses on activities that affect learning in law school. The results show how law students use their time, what they think about their experience in law school, and what schools can do to improve engagement and learning.

The selected results reported in this section are based on responses from 25,901 law students at 81 law schools who completed LSSSE in Spring 2012. ...

LSSSE data suggest that students benefit tremendously from their relationships with professors. Our analysis reveals that interaction with faculty relates significantly to students’ perceptions of their own gains in both academic and personal dimensions. Student-faculty interaction influences students’ assessment of their writing, speaking, and legal research skills; jobor work-related knowledge and skills; and critical and analytical thinking, among other factors. In terms of personal development, student-faculty interaction positively relates to students’ understanding of themselves and others, and to their development of a personal code of values and ethics and a sense of contribution to the welfare of the community. Finally, interaction with faculty also relates positively to students’ report of their grades. 

Interaction with faculty not only affects students’ sense of development, it also affects their overall level of satisfaction with law school. LSSSE data show that student-faculty interaction is strongly related to students’ likelihood of choosing the same law school again and of their evaluation of their entire educational experience. Similarly, student-faculty interaction also relates positively to students’ sense of the supportiveness of the law school environment and to their perception of the emphasis their coursework places on higher order learning activities.

Clearly, faculty matter to students. Given the strong benefit to students of these interactions with faculty, it is reassuring to note that LSSSE data do not show significant differences among different groups of students in levels of student-faculty interaction. No significant differences with regard to the amount of interaction with faculty are evident based on students’ race, ethnicity, or gender. While students with lower LSAT scores are slightly less likely to interact with faculty, and students who report higher grades in law school are slightly more likely to interact with faculty, these relationships were small but significant. More influential in terms of faculty interaction are student behaviors (asking questions in class) and activities (moot court and law journal participation, and leading a law school organization), suggesting that students who are more inclined to speak up in class also are more likely to seek out professors to discuss assignments and issues, and those who involve themselves in co-curricular activities may have more opportunities to work with faculty who are advisors. 

Generally, law students report positive relationships with faculty. Nearly half of students (45%) report that their instructors are highly supportive and encouraging. More than a third of students (38%) feel that their professors care about them as individuals. Fifty-seven percent report feeling strongly that faculty respect students.

• JD Journal, Law School Students Increase Legal Skills with Professor Interactions
• National Law Journal, Law Students Benefit by Connections with Professors, Fellow Students

Fleischer: ‘Tax Extenders’ That Slip Under the Radar

New York Times DealBook:  ‘Tax Extenders’ That Slip Under the Radar, by Victor Fleischer (Colorado):

The best tax loopholes hide in plain sight.

While the recent fiscal negotiations focused mostly on changes to the top income rate, the final bill (H.R. 8) contains a bonanza—52, to be exact—of what are known as “tax extenders.” The tax extenders are temporary or permanent extensions of special tax relief for particular industries or types of investments.

Congress likes these tax extenders, which have come to dominate the tax legislative process in recent years. The temporary nature of extenders reduces their estimated costs; budget estimates assume that the provisions will sunset as promised, instead of being extended each year, as most in fact are.

In addition to finessing the budget process, the annual ritual of enacting the tax extenders gives Congress a regular opportunity to check in on favored industries to see if they have been naughty or nice. As public scrutiny has led to a decline of direct spending in the form of earmarks, indirect spending through tax expenditures has become a more comfortable method of extracting campaign donations from industry and doling out tax breaks in return.

The worst tax extenders have gotten some unwanted media attention. These include the special expensing rules for film and television productions, NASCAR venues and rum production, and creative tax breaks for both fossil fuels and clean energy. But even the less offensive tax extenders, which tend to slip under the radar, are questionable from a tax policy perspective.

Consider the special provision for “qualified small business stock,” which provides a zero percent tax rate on capital gains from certain investments. A better name would be the “angel investor loophole.”

Cato Hosts Book Forum Today on Tamanaha's Failing Law Schools

The Cato Institute hosts a Book Forum today at noon EST (free live webcast here) on Brian Tamanaha (Washington U.), Failing Law Schools (University of Chicago Press, 2012)):

For decades, American law schools enjoyed one of the world’s great winning streaks. Amid swelling enrollments and what seemed an insatiable demand for new lawyers, they went on a spree of expansion; even as tuitions soared, the schools basked in an air of public-interest rectitude symbolized by Yale law dean Harold Koh’s description of his institution as a “Republic of Conscience.” Then came the Great Recession—and a great reckoning. New graduates were unable to find decently paying legal jobs even as they staggered under enormous debt burdens; it became impossible to ignore long-standing complaints from the world of legal practice that the law curriculum does not train students well in much of what lawyers do; and creative efforts to reduce the cost of law school were stymied by an accreditation process that closely constrains the format of legal education. In Failing Law Schools, one of the most talked-of books in years about higher education, Brian Tamanaha of Washington University has written a devastating critique of what went wrong with the American law school and what can be done to fix it. None of the key contributors to the problem—faculty self-interest, university administrators’ myopia, cartel-like accreditation—escape unscathed in his analysis.

Also appearing with author Brian Tamanaha:

• Paul Campos (Colorado; author, Don’t Go To Law School (Unless))
• William Gardiner (Washington U.)
• Neal McCluskey (Cato Institute)
• Walter Olson (Cato Institute; author, Schools for Misrule: Legal Academia and an Overlawyered America)

Continue reading "Cato Hosts Book Forum Today on Tamanaha's Failing Law Schools"

ObamaCare Tax Will Hit U.S. Citizens Working Abroad

Financial Post:  Obamacare Could Cost Some Canadians a Lot of Money:

In the wee hours of Jan. 1, 2013, as most of the country was catching some shuteye after the previous night’s New Year’s Eve festivities, the U.S. Senate passed the American Taxpayer Relief Tax Act of 2012 or, as some people refer to it, the “fiscal cliff” act.

The legislation contains changes to tax rules which may be relevant to the estimated one million U.S. citizens living in Canada. Under U.S. law, citizens are required to file an income tax return reporting worldwide income no matter where they reside. Most countries, including Canada, have a residency-based taxation system rather than a citizenship-based system.

In the majority of cases, however, U.S. citizens don’t end up owing U.S. federal tax due to offsetting foreign tax credits. For example, under the new legislation, U.S. high-income earners now face a top tax rate of 39.6% for income over $400,000, an increase from 2012’s top 35% rate. By comparison, Canada’s top marginal rate is 29% and kicks in at income of roughly $135,000 in 2013. But when you add in provincial taxes, combined top marginal rates range from 39% to 50%. This means that in nearly all cases, there will be enough Canadian taxes paid to offset any U.S. tax liability owing.

But for those U.S. persons making more than $200,000 in 2013, a separate piece of legislation, the Patient Protection and Affordable Care Act, known informally as “Obamacare,” could prove to be a real cost to some Canadians. The PPACA included a new measure, effective for 2013, called the net investment income tax (NIIT), which imposes a 3.8% surtax on net investment income, including interest, dividends and capital gains.

The problem for dual income tax filers, according to an alert issued by U.S. tax lawyer James Gifford of Moody’s LLP in Calgary, is that “foreign taxes most likely will not be creditable against the 3.8% Obamacare tax on net investment income.” This means that high-income Canadians may have to start writing a cheque to Uncle Sam for the first time in 2013.

Provost's Refusal to Reappoint Long-Serving Dean Roils SMU

• Memorandum from Provost Paul W. Ludden to SMU Law Faculty and Staff (Jan. 3, 2013)
• ABA Journal, LawSchool Benefactor Resigns From its Executive Board to Protest Surprising News of Dean’s Ouster
• Above the Law, Dean’s Ouster Inspires Outrage From Trustees, Joy From Students
• Dallas Morning News, SMU Ousts Law School Dean
• Leiter's Law School Reports, SMU Dean Attanasio Will Not Have Contract Renewed
• Texas Lawyer, No Fourth Term as Dean of SMU for John B. Attanasio
• Wall Street Journal, SMU Parts Ways With Law School Dean

(Hat Tip: Greg McNeal.)

IRS Announces Optional $1,500 Home Office Deduction in Lieu of Depreciation

IR-2013-5:  IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500:

The IRS today announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes. In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually. ...

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Rev. Proc. 2013-13, 2013-6 I.R.B. ___ (Feb. 4, 2013).

• Accounting Today, IRS Offers Simpler Option for Calculating Home Office Tax Deduction
• Bloomberg, IRS Announces Simpler Rules for Home-Office Deductions
• Forbes, Deducting Your Home Office (Read: Couch) Just Got a Whole Lot Simpler
• White House Blog, The Home Office Tax Deduction: Simplifying Rules and Helping Small Business Owners Succeed

What Rights Do Faculty Have in the Decision to Close a Law School?

Inside Higher Ed:  Shared Crisis:

Citing a recent wave of unilateral moves to eliminate academic programs by university administrators claiming financial crisis, the American Association of University Professors today released new guidelines designed to tighten the definition of financial exigency and increase faculty participation in deciding whether to close programs. ...

AAUP accepts that academic programs may be  cut due to true financial exigency or sound educational reasons, said Bérubé, professor of English at Pennsylvania State University and immediate past president of the Modern Language Association. But some of the cuts in recent years have not been based on a “you’re bankrupt and owe money to the mob tomorrow” imperative, but rather “festering” financial crises related to the greater economic climate in which administrations have looked to cut instructional costs before other, extracurricular priorities, such as athletics. ...

John Lombardi, a former president of the Louisiana State University and expert on institutional finance, said that financial exigency has historically been a point of contention between administrations and faculty precisely because it means different things to different groups at different levels of the institution. Union groups tend to hold that any available funds should be spent on keeping jobs, while administrators have to balance a wider variety of obligations.

American Association of University Professors, The Role of the Faculty in Conditions of Financial Exigency:

In recent years, American institutions of higher education have begun closing programs that should be part of any serious educational institution’s curricular portfolio and have been implementing policies that further erode the ranks and the discretionary power of the tenured professoriate. Program closures on the scale we have recently witnessed represent a massive transfer of power from the faculty to the administration over curricular matters that affect the educational missions of institutions, for which the faculty should always bear the primary responsibility. In most cases the decisions to close programs are made unilaterally and are driven by criteria that are not essentially educational in nature; they are therefore not only procedurally but also substantively illegitimate. Increasingly, administrators are making budgetary decisions that profoundly affect the curricula and the educational missions of their institutions; rarely are those decisions recognized as decisions about the curriculum, even though the elimination of entire programs of study (ostensibly for financial reasons) has obvious implications for the curricular range and the academic integrity of any university.

This report responds to this state of affairs in two ways: one, by making recommendations intended to strengthen shared governance and faculty consultation with regard to program closures and, two, by addressing the gap between Regulation 4c and Regulation 4d of the AAUP’s Recommended Institutional Regulations on Academic Freedom and Tenure. Regulation 4c pertains to financial exigency, and Regulation 4d concerns program discontinuance based on educational considerations.

First, as to governance and consultation, this report insists that faculty members must be involved in consultation and deliberation at every stage of the process, beginning with a determination that a state of financial exigency exists. We offer specific recommendations for such faculty involvement. ...

Second, this report proposes a more detailed and specific definition of “financial exigency” that will extend the standard of exigency to situations not covered by our previous definition. As set forth in the introduction, our new definition names a condition that is less dramatic than that in which the very existence of the institution is immediately in jeopardy but is significantly more serious and threatening to the educational mission and academic integrity of the institution than ordinary (short- and long-term) attrition in operating budgets. Financial exigency can legitimately be declared only when substantial injury to the institution’s academic mission will result from prolonged and drastic reductions in funds available to the institution and only when the determination of the institution’s financial health is guided by generally accepted accounting principles. In proposing this new definition, however, we insist that financial exigency is not a plausible complaint from a campus that has shifted resources from its primary missions of teaching and research toward the employment of increasing numbers of administrators or toward unnecessary capital expenditures.

The AAUP has long acknowledged that a college or university can discontinue a program of instruction, but our standard has been that if the discontinuation is not undertaken for financial reasons, it must be shown to enhance the educational mission of the institution as a whole; we have long acknowledged that programs can be cut in times of financial exigency, but only if an appropriate faculty body is involved in the decision-making process, beginning with the determination of whether an institution is experiencing bona fide financial exigency. But by and large, the program closings of recent years do not meet any of these standards. They represent a violation of the principles on which American higher education should operate and must be contested by a vigorous, principled, and informed faculty.

Fleming, Peroni & Shay: Designing a U.S. Exemption System for Foreign Income When the Treasury is Empty

J. Clifton Fleming Jr. (BYU), Robert J. Peroni (Texas) & Stephen E. Shay (Harvard), Designing a U.S. Exemption System for Foreign Income When the Treasury is Empty, 13 Fla. Tax Rev. 397 (2012):

This article springs from two concurrent phenomena. First, U.S. federal deficit spending projections indicate that any feasible deficit reduction plan will require substantial additional revenue. Second, the U.S. system for taxing foreign-source income is so badly flawed that if the United States were to adopt a principled exemption or territorial system under which eligible foreign source income is taxed at a zero rate, the fisc would actually gain revenue with which to ease the deficit problem. To realize its revenue raising potential, however, an exemption system will require the following characteristics (or comparable analogues): 1) A robust subject-to-tax requirement (to foreclose use of low-tax foreign regimes) and continued current taxation of passive and mobile income under an updated Subpart F regime; 2) Disqualification from exemption for royalties (including deemed royalties from a foreign branch), interest, services payments and other foreign-source items that do not bear a significant foreign tax; 3) Elimination of the current tax exemption for 50 percent of the income from U.S. export sales; 4) Allocation of domestic expenses to foreign-source income to protect the U.S. tax base from “deduction dumping” in a more realistic way than an inadequate 5 percent “haircut” and 5) A prohibition against deducting foreign losses from U.S.-source income.

To the extent that an exemption system deviates from these five characteristics, it creates revenue transfers to a relatively small group of mostly prosperous U.S. multinational corporate taxpayers at a time when the Treasury is in distress. This ought not to be allowed unless the transfers can pass a rigorous cost/benefit test.  

Free Live Webcast: Pepperdine/Tax Analysts Symposium -- Tax Advice for the Second Obama Administration

For those unable to join us in Malibu this Friday (Jan. 18) for our symposium on Tax Advice for the Second Obama Administration: please check out the free live webcast beginning at 8:45 a.m. PST:

Introduction and Welcome

• Deanell Tacha (Dean, Pepperdine)
• Chris Bergin (President, Tax Analysts)

Keynote Address:  Michael Graetz (Columbia)

Occupy the Tax Code:  The Buffett Rule, the 1%, and the Fairness/Growth Divide

Moderator:      David Brunori (Tax Analysts)

Papers:           Dorothy Brown (Emory), The 535 Report: A Pathway to Fundamental Tax Reform
                         Francine Lipman (UNLV), Access to Tax InJustice
                         Kirk Stark (UCLA) (with Eric Zolt (UCLA)), Tax Reform and the American Middle Class

Commentary:  Bruce Bartlett (New York Times), David Miller (Cadwalader, New York)

Estate and Gift Tax

Moderator:      Paul Caron (Pepperdine)

Papers:           Ed McCaffery (USC),
                         Grayson McCouch (San Diego), Who Killed the Rule Against Perpetuities?
                         Jim Repetti (BC) (with Paul Caron (Pepperdine)), Occupy the Tax Code: Using the Estate Tax to Reduce Inequality

Commentary:  Joe Thorndike (Tax Analysts)

Luncheon Address:   David Cay Johnston (author/journalist)

Business/International Tax #1

Moderator:     Tom Bost (Pepperdine)

Papers:          Steve Bank (UCLA), The Globalization of Corporate Tax Reform
                         Karen Burke (San Diego), Passthrough Entities: The Missing Link in Business Tax Reform
                         Martin Sullivan (Tax Analysts)

Commentary:  Michael Schler (Cravath, New York)

Business/International Tax #2

Moderator:     Khrista McCarden (Pepperdine)

Papers:          Reuven Avi-Yonah (Michigan), Corporate and International Tax Reform: Proposals for the Second Obama Administration
                        Allison Christians (McGill), Putting the Reign Back in Sovereign: Advice for the Second Obama Administration
                        Susan Morse (UC-Hastings), The Transfer Pricing Regs Need a Good Edit

Commentary:  Robert Goulder (Tax Analysts)

Closing Remarks:  What Have We Learned Today?:   David Cay Johnston (author/journalist)

Zelinsky: The Counterproductive Nature of Tax Expenditure Budgets

Edward A. Zelinsky (Cadozo), The Counterproductive Nature of Tax Expenditure Budgets, 137 Tax Notes 1317 (Dec. 17, 2012):

Paradoxically, the tax expenditure movement has succeeded procedurally but failed substantively: As tax expenditure budgets were firmly implanted in the federal and state budget processes, tax expenditures burgeoned. An explanation for this paradox is that tax expenditure budgets highlight for some groups the tax-based largesse obtained by others. Tax expenditure budgets thereby legitimate tax expenditures and, in a classic case of unintended and counterproductive consequences, reinforce a scramble for parity in the form of comparable tax benefits. The profusion of tax expenditure budgets has signaled to interests seeking succor from the public fisc that pursuit of a tax expenditure is often a better political option than the pursuit of a direct spending proposal.

An old adage warns to be careful what you wish for; you may get it. Tax expenditure budgets, sought as devices to control and limit tax expenditures, have counterproductively stimulated the search for tax expenditures by highlighting for organized interests the benefits obtained by others through the tax system. The net effect, unintended by the advocates of tax expenditure analysis, has been to legitimate and expand tax expenditures. 

All Tax Analysts content is available through the LexisNexis services.

Parents' College Financial Assistance Decreases Their Children's GPA

New York Times;  Parents’ Financial Support May Not Help College Grades:

Parents saving for college costs, take heed: A new national study has found that the more college money parents provide — whether in absolute terms or as a share of total costs — the lower their children’s college grades.

Students from wealthy families are more likely than those from poor families to go to college, and those whose parents pay their way are more likely to graduate. But according to More Is More or More Is Less? Parent Financial Investments During College, a study by Laura Hamilton, a sociology professor at the University of California, Merced, greater parental contributions were linked with lower grades across all kinds of four-year institutions.

“It’s a modest effect, not big enough to make the kid flunk out of college,” said Dr. Hamilton, whose study was published in this month’s American Sociological Review. “But it was surprising because everybody has always assumed that the more you give, the better your child does.”

The negative impact on grades was less at elite institutions than at other private, expensive, out-of-state colleges. The higher graduation rate of students whose parents paid their way is not surprising, she said, since many students leave college for financial reasons.

Dr. Hamilton suggested that students who get a blank check from their parents may not take their education as seriously as others. ... Dr. Hamilton found that the students with the lowest grades were those whose parents paid for them without discussing the students’ responsibility for their education. Parents could minimize the negative effects, she said, by setting clear expectations about grades and progress toward graduation.

Inside High Ed, Spoiled Children:

Hamilton may be prompting a lot of uncomfortable discussions between parents and college-age children this year. In April, Harvard University Press will be publishing a book, Paying for the Party: How College Maintains Inequality that she wrote with Elizabeth A. Armstrong, associate professor of sociology at the University of Michigan. That book argues that affluent students -- very much encouraged by their colleges and universities -- waste time and opportunities in college on "a party pathway" organized by the Greek system. The work argues that students who bypass the system may suffer social costs, but are likely to emerge with a much better education. Further Armstrong argues that the party system present at institutions with the affluent students to afford it ends up hurting the educational experience of all students.

Laura Hamilton (University of California-Merced, Department of Sociology), More is More or More is Less? Parental Financial Investments During College:

Evidence shows that parental financial investments increase college attendance, but we know little about how these investments shape postsecondary achievement. Two theoretical frameworks suggest diametric conclusions. Some studies operate from a more-is-more perspective in which children use calculated parental allocations to make academic progress. In contrast, a more-is-less perspective, rooted in a different model of rational behavior, suggests that parental investments create a disincentive for student achievement. I adjudicate between these frameworks, using data from nationally representative postsecondary datasets to determine what effect financial parental investments have on student GPA and degree completion. The findings suggest seemingly contradictory processes. Parental aid decreases student GPA, but it increases the odds of graduating—net of explanatory variables and accounting for alternative funding. Rather than strategically using resources in accordance with parental goals, or maximizing on their ability to avoid academic work, students are satisficing: they meet the criteria for adequacy on multiple fronts, rather than optimizing their chances for a particular outcome. As a result, students with parental funding often perform well enough to stay in school but dial down their academic efforts. I conclude by highlighting the importance of life stage and institutional context for parental investment.  

(Hat Tip: Mike Talbert.)

2013 Law Firm Outlook

Citi Private Bank and Hildebrandt Consulting LLC have released 2013 Law Firm Outlook:

[W]e expect that the trends of the past four years will continue into the foreseeable future. Demand, revenue and profit growth will be modest, although overall potential for increased demand exists as financial markets settle down and the economy strengthens. Law firm leaders would be wise to draw from the lessons of the prior four years in leading their firms into the future. They can no longer rely on a rising tide that lifts all boats. In fact, the tide is out. And to paraphrase Warren Buffett, it’s only when the tide goes out that you discover who’s been swimming naked. Don’t get caught swimming naked.

Tax practice is projected to decline 2%, the fifth worst performance aamong seven practice areas: 

• Above the Law:  BigLaw:  Welcome to the New Normal (Which is Not Unlike the Old Normal.)
• American Lawyer:  Report: The Boom Years Are Not Coming Back, Get Used to It
• Thomson Reuters:  Report on Law Firm Industry Is Cautiously Optimistic for 2013
• Wall Street Journal:  2013 Law Firm Outlook: ‘Don’t Get Caught Swimming Naked’

NY Times: Deductibility of Multibillion-Dollar Mortgage Settlements

New York Times:  Paying the Price, but Often Deducting It, by Gretchen Morgenson:

With multibillion-dollar mortgage settlements making headlines this year and last, the question has come to the fore again. Why should taxpayers subsidize corporations that are paying to right sometimes egregious wrongs? That is a particularly weighty question, given the urgent need for tax revenue to offset the ballooning federal budget deficit.

Under federal law, money paid to settle a company’s actual or potential liability for a civil or criminal penalty is not deductible. But, this being taxes, the issue is complicated. As Robert W. Wood, a tax lawyer, said in a 2009 Tax Notes article, “The tax deduction for business expenses is broad enough to include most settlements and judgments.”

In an interview last week, Mr. Wood, who is also the author of Taxation of Damage Awards and Settlement Payments, said the test for deductibility boils down to whether the payment is a penalty or is meant to be remedial. “I don’t know the specifics on these mortgage settlements,” he said, “but if any of the lenders are putting a bunch of money into a pot that goes to help people, yes, I would assume that everybody will deduct that.” ...

Phineas Baxandall, senior analyst for tax and budget policy at the United States Public Interest Research Group, a consumer-oriented nonprofit, and Ryan Pierannunzi, a tax and budget associate there, explored this issue in a report published last week. The report, titled Subsidizing Bad Behavior, details the history of the practice and suggests that government agencies should follow the SEC’s lead and disallow deductibility in settlements. Barring that, the authors said, regulators should disclose only the after-tax amounts of settlements, so that people understand how much money is really being paid.  

(Hat Tip: Mike Talbert.)

Peer Reviewed Scholarship Marketplace Seeks Authors and Reviewers

Following up on my prior posts (here and here): the Peer Reviewed Scholarship Marketplace has issued this press release seeking authors and reviewers:

Peer Reviewed Scholarship Marketplace (“PRSM”), a consortium of student-edited legal journals, exists to provide student-editors with peer evaluations of legal-scholarship manuscripts and to assure the publication of quality articles. PRSM connects authors and journals with subject matter experts, who through their reviews provide editors with the information they need to make informed decisions regarding article selection.

• Akron Law Review
• Alabama Law Review
• Arizona State Law Journal
• Drexel Law Review
• Florida Law Review
• Fordham Law Review
• Georgia Law Review
• Hastings Law Journal
• Louisiana Law Review
• Loyola of Los Angeles Law Review
• Mississippi Law Journal
• Nevada Law Journal
• North Carolina Central Law Review
• Rutgers Law Journal
• South Carolina Law Review
• Valparaiso University Law Review
• Wake Forest Law Review
• Washington & Lee Law Review  

NY Times: An Incomplete AMT Fix

New York Times editorial:  An Incomplete Fix:

Thanks to the fiscal cliff deal, the alternative minimum tax will not ensnare tens of millions of middle-class Americans for whom it was never intended. The deal raised the income thresholds before the AMT kicks in and indexes them for inflation going forward. As a practical matter, this means that 28 million filers who would have had to pay the tax on their 2012 returns have been spared and are much less likely to have to pay the tax in the future.

Yet the fixes are incomplete. The purpose of the AMT is to ensure that wealthy taxpayers cannot make excessive use of deductions, shelters and other tax breaks. It was supposed to hit multimillionaires and billionaires whose tax shelters reduce their tax bills to a pittance relative to their incomes. In the absence of comprehensive reform, the AMT will continue, for the most part, to allow the highest-end taxpayers to escape, while still afflicting many taxpayers below those lofty levels.

In 2011, for instance, more than half of taxpayers in the $200,000 to $500,000 income range paid the AMT compared with only one-third of taxpayers who made more than $1 million, according to the Tax Policy Center. The situation will be much the same for 2012 and beyond unless Congress acts to rectify it.

The main problem lies in what counts as an excessive tax break. Common write-offs for dependents and for state and local taxes are counted as shelters subject to taxation under the AMT. Most AMT payers are couples with children in the high-tax states of New York, New Jersey, Connecticut and California.

Tax breaks for dividends and capital gains, however, are not counted as shelters subject to the AMT As a result, the wealthiest Americans — who reap the lion’s share of such investment income while enjoying the low tax rates that go with them — are less likely than not-so-wealthy filers to fall into the AMT.

(Hat Tip: Mike Talbert.)

New York to Consider Making Third Year of Law School Optional

New York Law Journal:  FDR Did Fine Without a 3L Year: New York May Let Law Students Once Again Take the Bar Exam After Two Years:

The third year of law school has long been a punching bag for critics who argue it's a waste of time and drives up the costs of a law degree, but there have been few serious attempts to do anything about it. Until now.

Legal educators and top New York state court officials will gather on January 18 to discuss whether to allow candidates to sit for the New York state bar examination after just two years in law school. The idea was floated by Samuel Estreicher, a professor at New York University School of Law, who believes skyrocketing law school tuition and diminishing job prospects for new lawyers have created a climate favorable to reform. ...

Estreicher laid out his proposal in an article, The Roosevelt-Cardozo Way: The Case for Bar Eligibility After Two Years of Law School, in the New York University Journal of Legislation and Public Policy. (The title refers to President Franklin Delano Roosevelt and U.S. Supreme Court Justice Benjamin Cardozo, both of whom obtained their law degrees when two years was the norm.) He described two benefits to the two-year option, not least that the cost of becoming a lawyer would be reduced by one-third and that, with lower student loan debt, graduates would be in a better position to take lower-paying jobs representing low-income clients. Second, an optional 3L year would give schools incentives to create third-year curricula of more use to students, he wrote; if students saw no real benefit to the 3L curriculum, they would sit for the bar exam instead. ...

Patricia Salkin, dean of Touro College Jacob D. Fuchsberg Law Center, fears the two-year option wouldn't satisfy legal employers' demands for practice-ready attorneys. "If students spend the first and second years taking core courses, when are they going to develop the practical skills that firms say they want?" she said. "And for the students, will the firms hire someone with only two years of law school, even if they pass the bar?"

The answer to that question, at least for the law firms, judges and federal agencies that tend to hire a large chunk of NYU graduates, is likely no, said dean Richard Revesz. He predicted that few NYU students would be interested in the two-year option. "I'm not a fan of the proposal," he said. "I think it would not be beneficial, but I'm interested in hearing a lot of viewpoints." Revesz said he is skeptical that a two-year option would be an added incentive for schools to revamp curriculum, given that many — including NYU — have already changed their 3L curricula or are weighing such reforms.

Starkman: E-Filing and the Explosion in Tax-Return Fraud

Wall Street Journal op-ed:  E-Filing and the Explosion in Tax-Return Fraud, by Jay Starkman:

Tax-identity theft exploded to more than 1.1 million cases in 2011 from 51,700 in 2008. The Treasury Inspector General for Tax Administration last summer reported discovering an additional 1.5 million potentially fraudulent 2011 tax refunds totaling in excess of $5.2 billion.

Why has identity theft rocketed through the IRS? Because American taxpayers, urged on by the IRS, have taken to filing their income-tax returns electronically and arranging for refunds to be directly deposited into bank accounts. E-filing is appealing because it provides an electronic postmark confirmation that the return was filed on time. When it is combined with direct deposit, a refund can arrive in as little as seven days. In 2012, 80% of individual returns were e-filed, fulfilling an initial goal Congress set in 1998. The result is an automated system in which the labor burden is transferred to the taxpayer.

Fraudulent tax returns can come in the form of tax-identity theft, refund fraud, or return-preparer fraud and are difficult to prosecute. With e-filing, evidence of fraud is difficult to find. There are no signed tax forms, envelopes or fingerprints, and e-filing promises quick refunds. ...

The national taxpayer advocate has recommended that taxpayers be allowed to tell the IRS to accept their return only when filed on paper, thus preventing e-file tax-identity theft. So far the IRS has failed to allow this. Less effective methods are to request an "electronic filing PIN," available at www.irs.gov, and file Form 14039, "Identity Theft Affidavit," so that the IRS might apply additional return-screening procedures. Sadly, conventional credit-monitoring services are useless against income-tax identity theft.

In sum, e-filing helps the IRS with audit selection, costs the Treasury billions through fraud, and transfers many costs of tax administration to you.

Diamond: Lawyers for America: A J.D. Version of Teach for America

Expanding on an idea he raised in a comment to my prior post, Diamond: Law School Is Not a 'Scam':  Stephen Diamond (Santa Clara), Beyond the “Scam” Debate About Law Schools: Lawyers for America – A Modest Proposal:

The debate over whether or not law school is a “scam” would seem to be largely over. Court after court has dismissed cases against law schools for charges of misleading employment statistics. ...  But leaving aside the failed litigation strategy of the “scam” crowd and the unsurprising impact that falling application rates is having on resolving the “failing law school” crowd’s arguments, we are left with one very important problem: the thousands of successful law school graduates who passed the bar but have not been able to find jobs as lawyers or to find appropriate non-lawyer occupations and thus are facing a mountain of debt. I do not know the exact numbers but I think it is large enough to be considered an important problem for society as a whole not just lawyers and law schools. As a society, we should not be allowing these young people to waste the years of training we have invested in them.

I believe a proposal should be developed to solve the problem. It would work like Teach for America and I call it Lawyers for America. It would offer young unemployed or underemployed lawyers the chance to practice law serving an underserved community under the supervision of existing lawyers. One example: there are many thousands of small businesses in our poor and immigrant communities, including cleaning, housekeeping, gardening, construction and other services.  Many of these could be organized as LLCs thus shielding their owners from personal liability. This requires legal help.  These entities could use other legal advice as well. A legal service organization would be established in major urban areas that could provide these services.

The supervising lawyers could earn CLE or pro bono credit for their time. The law students would be provided a stipend for living expenses and more importantly would earn credits for debt relief. Every year of full time service would earn them 20% cancellation of their outstanding debt. ...

A program like this that ran for perhaps five to ten years would allow an entire generation of young lawyers to learn their craft, relieve their debt, and contribute significantly to the wider society. They would emerge at the end of the program with either a genuinely sustainable reduced debt load or in some cases no debt at all. They would have skills and experience and perhaps new relationships that would make them employable as lawyers in what we all hope is a much healthier economy.

Hasen: Partnership Special Allocations Revisited

David Hasen (Santa Clara), Partnership Special Allocations Revisited, 13 Fla. Tax Rev. 349 (2012):

Special allocations of items of partnership income, gain, loss, and deduction have long created difficulties for the tax law. The paper argues that most such allocations should not be respected for tax purposes because they inappropriately separate the character of partnership items from the partners that are economically entitled to them. The paper suggests that special allocations instead ought to be viewed as transactions in partnership interests between or among the partners themselves. A number of consequences follow. The paper also argues that Treasury's rules for establishing the partners' interests in the partnership when an allocation fails the test for substantiality likely are inconsistent with section 704(b) of the Internal Revenue Code.

Caron & Repetti: Occupy the Tax Code: Using the Estate Tax to Reduce Inequality

Paul L. Caron (Cincinnati) & James R. Repetti (Boston College), Occupy the Tax Code: Using the Estate Tax to Reduce Inequality, 40 Pepp. L. Rev. ___ (2013):

Inequality has been increasing in the United States. We should care about this increase because inequality contributes to a variety of adverse social consequences that persist across generations. There is also substantial empirical evidence that inequality has a long-term negative impact on economic growth.

For many decades, federal tax policy has played an important role in reducing inequality, although the impact of federal taxes on inequality has waxed and waned depending on the focus of elected officials. We argue that the estate tax is a particularly apt vehicle to reduce inequality because inheritances are a major source of wealth among the rich, and studies suggest that inherited wealth has a more deleterious impact on economic growth than inequality caused by self-made wealth. Although there are loopholes in the estate tax, it is still effective in moderating the amount of wealth that is passed within a family from generation to generation.

The major criticism about the estate tax—that it discourages savings—is inaccurate. Standard tax theory cannot predict the impact of the estate tax on savings and the empirical evidence is mixed. Moreover, the estate tax has a less harmful impact on savings than the income tax for two reasons. First, the event that triggers estate tax liability—death—is ignored by taxpayers during the period of life in which they are likely to be most productive. Second, the expected value of the estate tax’s effective rate is quite low during the period of life in which most taxpayers create wealth.

Johnston: The Fiscal Cliff Tax Deal Makes Deficit Worse

David Cay Johnston, Deficits, Schmeficits, 138 Tax Notes 237 (Jan. 14, 2013)

Johnston argues that the fiscal cliff compromise will make it harder to solve the United States’ long-term deficit and debt problems.

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Workers Spent 28%-43% of 2011 Payroll Tax Cut

Grant Graziani (National Bureau of Economic Research), Wilbert Van der Klaauw (University of North Carolina, Department of Economics) & Basit Zafar (Federal Reserve Bank of New York), A Boost in the Paycheck: Survey Evidence on Workers’ Response to the 2011 Payroll Tax Cuts:

This paper presents new survey evidence on workers’ response to the 2011 payroll tax cuts. While workers intended to spend 10 to 18 percent of their tax-cut income, they reported actually spending 28 to 43 percent of the funds. This is higher than estimates from studies of recent tax cuts, and arguably a consequence of the design of the 2011 tax cuts. The shift to greater consumption than intended is largely unexplained by present-bias or unanticipated shocks, and is likely a consequence of mental accounting. We also use data from a complementary survey to understand the heterogeneous tax-cut response.

Somin: Tax Rates and Political Ignorance

The Volokh Conspiracy:  Tax Rates and Political Ignorance, by Ilya Somin (George Mason):

Many polls show that large majorities of the public want to raise tax rates on people earning over $250,000 per year. But in an interesting recent post on the Democrats’ approach to tax policy, Megan McArdle cites an interesting 2012 poll of likely voters conducted for The Hill, which shows that the vast majority of Americans prefer rates that are much lower than those that existed even before the the recent fiscal cliff deal. ... Support for relatively low tax rates was not limited to Republicans or high-income earners. Indeed, low tax rates for the wealthy got their highest level of support from relatively low-income survey respondents, and their lowest level from the wealthy themselves. ...

Why is it that large majorities simultaneously support increasing income taxes on people earning over $250,000 per year, but also believe that they should be taxed at a lower rate than existed even before the recent fiscal cliff deal raised it for individuals earning over $400,000, and families earning over $450,000? As The Hill points out, the most likely explanation is political ignorance. Most people probably don’t know what tax rates are currently in force, especially for people in income classes other than their own. ... If most of the public is indeed ignorant on this point, it would be consistent with extensive political ignorance on a wide range of other issues, including fiscal policy and the federal budget. ...

To be clear, I am not suggesting that raising tax rates above 30% is a bad idea merely because the vast majority of the public opposes it. Most of the public has little understanding of the relevant arguments and data. Their views are only a weak indicator at best of the desirability of particular tax rates. But the data do suggest that ignorance of current tax rates may be a strong influence on the distribution of public opinion on tax issues. And public opinion, in turn, has an influence on policy, even if it’s not the only factor affecting it.

TaxProf Blog Weekend Roundup

Saturday:

• 9th Circuit:  Lawyer Can't Keep Tax Records from IRS
• Joint Tax Committee Releases List of Expiring Federal Tax Provisions, 2013-2023
• Percentage of Tax Returns With AGI Over $500,000
• Customer Leaves Anti-Tax Note Rather Than Tip

Sunday:

• New England Law Dean's $867,000 Salary Draws Scrutiny Amidst Soaring Tuition, Bleak Job Prospects for Grads
• NY Times:  The Tax Code and the Very Rich
• NPR:  A Tale of Four Tax Returns
• Top 5 Tax Paper Downloads

New England Law Dean's $867,000 Salary Draws Scrutiny Amidst Soaring Tuition, Bleak Job Prospects for Grads

Boston Globe:  New England Law Head Draws Scrutiny For His Pay:  A Princely Paycheck For Dean of Unheralded School:

New England Law, Boston has operated in the shadows of the ­region’s more prestigious law schools for decades, trailing so far behind in some measures of excellence that US News & World ­Report does not include the downtown campus in its widely read ranking of 145 better law schools in the nation. [New England is ranked #154 in academic reputation.]

Yet the school’s longtime dean, John F. O’Brien, may be the highest paid law school dean in America, pocketing more than $867,000 a year in salary and benefits, includ­ing a [$650,000] “forgivable loan” that he used to buy a Florida condominium.

“It’s a remarkable sum to pay a dean of a law school, never mind the dean of a bottom-ranked law school,” said Brian Z. Tamanaha, a law professor and the author of Failing Law Schools, a 2012 book critical of the nation’s legal education system.

O’Brien is paid about as much as the president of Harvard University and more than three times the median salary of law school deans nationally, says a study by the College and University ­Professional Association for Human Resources. Indeed, New England Law could not name a single law school dean in the country who makes more than O’Brien.

But O’Brien’s story is more than the tale of a richly compensated school administrator. It is also the story of a professor who vaulted, just a few years into his academic career, to the top job at a lower-tier law school in large part through shrewd networking, sheer persistence, and a close relationship with the school’s board of trustees, many of whom have served on the board for most or all of O’Brien’s 25-year tenure as dean.

It is also the story of a law school that has hiked tuition by more than 80% in just a few years while doubling the percentage of applicants it accepts, generating the funds for increased student aid but also for the big salaries paid to O’Brien and other top administrators even as the demand for law school graduates dries up. ...

But, away from the glitz, O’Brien’s salary is drawing private criticism from some within the school and public barbs from outside observers who question whether the school is really worth the $40,000 ­tuition it charges students. “There’s no relationship ­between cost and benefit,” said Paul F. Campos, a University of Colorado Law School professor and the author of the blog ­“Inside the Law School Scam.” ...

[S]ome indicators suggest that O’Brien’s impact on New England Law’s performance has been limited. US News & World Report, in its listing of 199 law schools, includes New England Law among the bottom 50 or so schools that it does not publicly rank because they fall “below the US News cutoff.”

In addition, only 34 percent of students in New England Law’s 2011 graduating class were able to land jobs requiring a law degree within nine months of graduating, according to the American Bar Association, compared with 68 percent at Boston College Law School, and 90 percent at ­Harvard Law. ...

Yet, students at New ­England Law pay almost as much in tuition as students attend­ing law schools where graduates generally have more success finding meaningful employment. Boston College law students, for instance, pay only about $1,000 a year more than New England Law students.

But New England Law’s escal­ating tuition has been a boon to its bottom line. The school — a tax-exempt, charitable organization, like most other colleges and universities in the region — reported that revenues exceeded expenses by $10 million in the 2011 fiscal year, which would represent a profit of roughly 30 percent if it were a for-profit company.

O’Brien said the school’s ­robust finances have allowed New England Law to triple ­financial aid, noting that 60 percent of students receive some form of scholarship from the school. The school’s budget surplus translates into roughly $9,000 for every student at New ­England Law, suggesting that officials could significantly ­reduce tuition and still not lose money for the year. ...

A native of Staten Island, he had graduated from Manhattan College, a Catholic school in the Bronx, before graduating first in the class of 1977 at what was then New England School of Law. For the next seven years, O’Brien labored as an attorney for the IRS before returning to New England Law as a professor of constitutional law and personal income taxation and, later, associate dean. In 1988, when he was still only in his late 30s, he was handed the reins of a school known for offer­ing students of lesser means or less than sterling credentials a chance for legal training.

NY Times: The Tax Code and the Very Rich

New York Times:  Explanations and Advice for Those Hit Hardest by New Tax Increases, by Paul Sullivan:

While the affluent will pay more in taxes this year, that is probably not the case for the very wealthiest — those worth hundreds of millions or more. They may still be paying a lower tax rate than Warren Buffett’s secretary.

Many millionaires are certainly paying at least 30% of their income in taxes, a goal President Obama set out in last year’s State of the Union address. But they’re more likely to be doctors, lawyers and people working in the financial services industry who get the bulk of their earnings in the form of paychecks.

Partners in private equity firms and hedge fund managers, on the other hand, earn much of their money as a share of their funds’ earnings. And that income gets preferential tax treatment as so-called carried interest.

A similar special tax treatment still holds true for Mr. Buffett as long as the bulk of his income comes from his investments and not a paycheck. The long-term capital gains rate for incomes over $400,000 is 23.8%, including the Medicare surcharge. That’s a far cry from the top marginal tax rate on income above that amount of 40.5%, which includes a 0.9% Medicare surcharge on earned income.

How are people going to react to all of this? Here is advice and observations from some experts in wealth management.

• New York Times Bucks Blog: The Tax Code and the Very Rich

(Hat Tip: Mike Talbert.)

NPR: A Tale of Four Tax Returns

Watch 1/11/2013: A Tale of Four Tax Returns on PBS. See more from Need To Know.

(Hat Tip: Francine Lipman.)

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 #5.  The #1 paper is #1 in all-time downloads among 8,893 tax papers:

1.  [6265 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.  [338 Downloads]  Taxation in the Bible, by Geoffrey P. Miller (NYU)

3.  [282 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)

4.  [196 Downloads]   Important Developments in Federal Income Taxation, by Edward A. Morse (Creighton)

5.  [138 Downloads]  Taxing Market Discount on Distressed Debt, by Ethan Yale (Virginia)

9th Circuit: Lawyer Can't Keep Tax Records from IRS

The Recorder:  Ninth Circuit Says Lawyer Can't Keep Tax Records from IRS:

An Oakland lawyer facing federal tax evasion charges will have to turn over her tax records, even though they're in the possession of her lawyers. The U.S. Court of Appeals for the Ninth Circuit ruled Tuesday that divorce lawyer Mary Nolan's 2007 and 2008 tax records are not shielded by attorney-client privilege because her tax preparer can describe them with particularity, rendering their existence a foregone conclusion. ...

Tuesday's decision in U.S. v. Sideman & Bancroft is as interesting because of who's involved than for the legal principle established. Nolan was indicted in September — a week after arguments before the Ninth Circuit — both for tax evasion and for allegedly conspiring with a disgraced private investigator to eavesdrop on her clients' spouses. Nolan was represented before the Ninth Circuit by Sideman partner Jay Weill, the longtime tax chief for the U.S. attorney's office in San Francisco, though Berkeley's Cooper Arguedas & Cassman took over after the indictment was handed up.

The fight over the tax records began two years ago when the IRS issued a lengthy subpoena. It covered four banker boxes and three accordion files containing check ledgers, client billings, credit card statements and day planners, among other things, that Nolan had supplied to her accountant to prepare her tax return. The same day the IRS executed a search of Nolan's home and office, the accountant gave the documents — contained in the four banker boxes and three accordion folders — to Nolan's civil tax attorney, who in turn provided them to Sideman & Bancroft.