Author: Leandra Lederman

William W. Oliver Professor of Tax Law at Indiana University Maurer School of Law in Bloomington. Find my research at http://ssrn.com/author=48125 and my full publication list at http://www.law.indiana.edu/people/lederman/publications.shtml. I teach Income Tax, Corporate Tax, Tax Procedure, and Tax Policy Colloquium. I generally write about tax compliance and tax administration, the U.S. Tax Court, and the federal income tax as it applies to individuals and corporations. I'm on Twitter at https://twitter.com/leandra2848; come for the law and policy tweets, stay for the #taxvalentines and tax in popular culture!

“Taxman” at 50

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Updated lyrics are available here.

The Beatles’ hit song Taxman has just turned 50; it was released August 5, 1966 in the U.K. Taxman, written primarily by George Harrison, famously includes the lyrics

“Let me tell you how it will be
There’s one for you, nineteen for me
Cos I’m the taxman, yeah, I’m the taxman

Should five per cent appear too small
Be thankful I don’t take it all . . . .”

Apparently this song was at least partly inspired by the theme for the 1966 TV show, Batman! batman222june1970And, in the early 1980s, Weird Al Yankovic wrote a parody called “Pac-Man,” though it was not released  on any of his albums.

H&R Block used the Taxman song in a 2002 commercial literally showing only tax men: “It took an Act of Congress to pass 441 changes in the tax law. Will it take an act of God to understand them?” (There’s a different, more diverse version here.)

Did the Beatles really pay a 95% tax rate? According to a Bloomberg article, “The top rate for British taxpayers in the mid- Continue reading ““Taxman” at 50″ →

Don’t Impeach IRS Commissioner Koskinen

Rep. Jason Chaffetz (R-Utah), Chair of the House Committee on Oversight and Government Reform, has introduced H. Res. 737, which would condemn and censure IRS Commissioner John Koskinen. Efforts to impeach or censure the Commissioner are the latest skirmish between Congress and the embattled IRS stemming from the IRS’s use of “Be On the Lookout” (BOLO) lists to screen for excessive political activity by applicants for tax-exempt status under Code section 501(c)(4). The American College of Tax Counsel (ACTC) has sent several House leaders a compelling letter expressing its “view that such actions are not commensurate with the alleged conduct” and its justifiable concern that resolutions to impeach and censure Commissioner Koskinen “will damage the agency at a time when it needs strong leadership.”

Readers may recall that Steve Miller was Acting Commissioner when the Treasury Inspector General for Tax Administration (TIGTA) released its report on the BOLO issue, entitled “Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review” in May 2013. Miller resigned shortly after that, because President Obama asked Secretary of the Treasury Jack Lew to request Miller’s resignation. Daniel Werfel then became Acting Commissioner for about seven months. Mr. Koskinen did not become IRS Commissioner until Dec. 23, 2013. This was a challenging time to take on that role, given the state of the IRS’s relationship with Congress. The House Committee on Oversight and Government Reform held particularly partisan, contentious hearings. Continue reading “Don’t Impeach IRS Commissioner Koskinen” →

An Amicus Brief on Behalf of the Commissioner in Altera

Susie Morse (Texas) and Steve Shay (Harvard) recently blogged on Procedurally Taxing about the amicus brief they spearheaded and in which I joined, along with Dick Harvey, Ruth Mason, and Bret Wells. The brief, which is available on SSRN, is one of two amicus briefs arguing in favor of the Commissioner’s position before the Ninth Circuit in Altera Corp. v. Commissioner.

In Altera, the U.S. Tax Court invalidated under section 706(2)(A) of the Administrative Procedure Act (APA) a transfer-pricing regulation–Treas. Reg.  § 1.482-7(d)(2)(2003)–on the ground that the regulation was arbitrary and capricious. The regulation required commonly controlled taxpayers wishing to benefit from a safe harbor applicable to cost-sharing agreements to include stock-based compensation as an expense. The Tax Court found that requirement arbitrary and capricious because of evidence Treasury received in the notice-and-comment process that parties not under common control did not share stock-based compensation costs.

Our brief argues in part that, as Treasury stated in the Preamble to the regulation, cost-sharing agreements between uncontrolled parties are not sufficiently comparable to controlled-party transactions to constitute reliable evidence under the standards of Code section 482. In a nutshell, that is because (1) stock-based compensation is an economic cost, (2) transacting parties can adjust another provision of their agreement to achieve the same result, and (3) unrelated parties might prefer not to take on the risk of a counterparty’s stock–a concern that doesn’t arise in controlled-party transactions. The brief argues that Treasury’s actions, including its explanation in the Preamble, were sufficient as a matter of administrative law. Susie and Steve’s excellent blog post on Procedurally Taxing provides more detail.

The new Tax Gap Map: not much has changed

On Thursday, the IRS released new federal tax gap estimates, including a new Tax Gap Map (on page 3 here). It’s been a while; the previous estimates were calculated in December 2011, for tax year 2006. The principal new addition to the Tax Gap Map is that the estimate of the net tax gap (the gross tax gap reduced by enforced and late payments) is now broken down by type of tax. Also, the new release is different in that it doesn’t focus on a single tax year but rather averages for tax years 2008-2010.

The new estimates show an estimated gross tax gap of $458 billion—compared to $450 billion for 2006—and an overall “voluntary compliance rate” of 81.7% of tax liability, compared to 83.1% for 2006. At first glance, these figures suggest that voluntary compliance is declining and that the tax gap is growing. However, the IRS explains on page 2 of its report that these differences “are driven by improvements in the accuracy and comprehensiveness of the estimates through updates in methods and the inclusion of new tax gap components.” In particular, the IRS explained that “[h]ad the improvements not been made, the TY 2008–2010 tax gap estimates would have been slightly lower than the previous TY 2006 estimates.” (Emphasis added.) And although only about half of the decline from the estimated 83.1% rate to the new estimate of 81.7% is due to changes in methodology, the IRS explains the many factors that may change over time, the remaining 0.7% percentage point difference can’t be relied upon to indicate a real decline in voluntary compliance. Jim Alm & Jay Soled have argued that the tax gap may decline over time, for a variety of reasons, including the increasing use of electronic-payment mechanisms, which result in much more visible transactions than cash does, although they acknowledge that there are countervailing trends, as well, including the underfunding gap the IRS has been struggling with.

The single biggest contributor to the federal tax gap, in terms of dollars, according to the IRS’s estimates, remains underreporting by individuals of business income, at $125 billion (very similar to the $122 billion figure for 2006). Think cash transactions. It remains clear that third-party information reporting makes a huge difference. Page 5 of the IRS release shows that in a nice bar graph. While the IRS estimated that wages and salaries, which are subject to both information reporting and withholding, experienced the lowest net misreporting rate, at 1%, income subject to substantial information reporting experiences a fairly low 7% misreporting rate. By contrast, income subject to little or no information reporting has a 63% misreporting rate. That last category includes such things Continue reading “The new Tax Gap Map: not much has changed” →

Introduction Post: Leandra Lederman

contrabandoHi! I’m @Leandra2848, AKA Leandra Lederman, the William W. Oliver Professor of Tax Law at Indiana University Maurer School of Law in Bloomington. I have blogged occasionally before but never as a regular contributor—much less as a member of a Surly Subgroup—so this is a real privilege!

I’ve been a tax professor for 22 years, 12 of them at Maurer (minus last semester at U. Chicago). I teach Income Tax, Corporate Tax, Tax Procedure, and I run a Tax Policy Colloquium that brings 6 or 7 tax professors to Bloomington over the course of the spring semester. I’ve also taught a short course in Pamplona, Spain each of the last five years.

I write both on the individual and corporate federal income tax (including a 2016 edition of Understanding Corporate Taxation, co-authored with Michelle Kwon) and on tax procedure, which includes tax administration and tax litigation. Most recently, I wrote two articles about problems facing the IRS. Much of my work relates to tax compliance/ Continue reading “Introduction Post: Leandra Lederman” →