By David Herzig
I promised I would update the twitter tax feeds in my last post. There are a number of new names on the updated list as tax professors continue to enter the twitterverse. I did update the list to be in alphabetical order. As always, if I am missing someone, please let me know.
Starting with the SurlySubgroup (@surlysubgroup)
Jennifer Bird-Pollan (@jbirdpollan)
Sam Brunson (@smbrnsn)
Phil Hackney (@EOTaxProf)
David Herzig (@professortax)
Stephanie Hoffer (@Profhoffer)
Leandra Lederman (@leandra2848)
Ben Leff (@benmosesleff)
Francine Lipman (@Narfnampil)
Diane Ring (@ringdi_dr)
Shu-Yi Oei (@shuyioei)
Other United States/Canadian Tax Professor (in alphabetical order):
Continue reading “Twitter Tax Feeds for 2017”
By David Herzig
Every year, Kelly Erb (@taxgirl) posts her top tax Twitter follows. This year, I was fortunate to make the list. In addition to my shameless self promotion, I am directing you to her article because it was nice to see that many other academics made the list.
I think the fact that so many academics made this list is very important right now. First, academics tend to get a bad rap for living in ivory towers. Twitter is a great egalitarian platform. Second, in the upcoming months, active engagement by the best and brightest is paramount. Twitter for all its flaws allows for real time interactions. Seriously, you would be amazed how far you can spread your knowledge! Finally, it reminds me to update my old list I posted at Surly. If I am missing your name, please let me know and I will repost later this month.
In the meantime, here were the academics on the list:
Tim Todd – @lawproftodd – Assoc Dean for Academic Affairs & Law Professor @LibertyLaw;
Andy Grewal – @AndyGrewal – Professor of Law, @uiowa;
Judith Freedman – @JudithFreedman – Oxford University Professor of Taxation Law;
Lily Batchelder – @lilybatch – Professor of Law & Public Policy at @nyulaw;
David Herzig – @professortax – – Professor of Law @ValparaisoLaw;
Allison Christians – @taxpolblog – Stikeman Chair in Tax Law, McGill University; and
Xavier Oberson – @XavierRoberson – Professor of Swiss and International Tax Law at Geneva University
By: David Herzig
Friday the Wall Street Journal published Daniel Hemel and my article on why we think it will be very hard for the Senate to just do away with the ACA (aka Obamacare) via reconciliation. We follow-up our earlier Surlygroup posting (also cross-posted at Yale J. Reg.) which discussed why the Senate norms are hard to break. Since that article, we have developed some fairly interesting models on why we think the Senate norms are rather sticky – more on that to come.
In the Wall Street Journal article we state, “Most significantly, Majority Leader Mitch McConnell and his caucus may be forced to choose between their antipathy toward the ACA, also known as Obamacare, and their allegiance to longstanding institutional norms. In the end, the scope of ACA repeal will likely depend on whether Senate Republicans decide to score political victories in the short term or to maintain the Senate’s unique culture for the long haul.”
The problem for the republicans is the Byrd rule. Repeal of the ACA will have budgetary impact beyond the budget window. A decision will need to be made on the impact. As we stated, “On some reconciliation-related questions, the presiding officer defers to the Budget Committee chairman, currently Senator Mike Enzi. On other questions, including whether a provision produces “merely incidental” effects on the budget, the presiding officer generally follows the advice of the Senate’s nonpartisan parliamentarian, the official adviser to the Senate on the body’s rules.”
Continue reading “Budget Reconciliation Process and Obamacare”
By: David J. Herzig
The New York Times wrote about the Pratt Family burial plot. As Daniel Hemel pointed out there was also a tax story; apparently, the cemetery qualifies as a 501(c)(13) tax-exempt entity. So, when you combine tax and a Cleveland company, I was fascinated by the story. 
Because the cemetery is tax-exempt under section (c)(13), it can only benefit its members. This is contrary to the general rule for tax-exempts that you benefit everyone as opposed to just members. The question that the IRS had to address was how discriminatory could the cemetery be. For example, whether both the Rockefellers and the Pratts could be buried in the cemetery. According to Daniel’s review of the rulings and regulations, “the Pratt family cemetery won’t lose its tax exempt status if it excludes the Rockefellers (or any other non-Pratts) from being buried there. But the family cemetery need not limit membership to Pratts in order to maintain its tax exemption.” All of which is true.
But, I wondered why does the family care so much about maintaining the tax exemption. I started to dig around to find the 990s of the cemetery. What if the tax-exemption were terminated? (As a certain President Elect has come to decide – sometimes the maintenance of tax-exempt entities are more trouble than they are worth).
Continue reading “Rockefellers, Pratts and Private Cemeteries”
By: David Herzig
I was fortunate enough to present to the Chicago Estate Planning Council about a week ago. I rearranged a presentation that I gave at the Notre Dame Tax and Estate Planning Institute. (As an aside, both of these forums are great sources of continuing cutting edge eduction for the practicing bar). I spent the majority of the hour I was allotted describing section 1202 the Qualified Small Business Stock Exemption. To my shock, most of the 300 in attendance either were not familiar with the provision or had not thought about it for a decade. After a quick twitter exchange, I thought I would do a short post explaining the code section as well as why it should be used or at least discussed more.
First, can everyone in Silicon Valley please stop laughing. I get it. You have been using 1202 since the 1990s. Almost every VC agreement requires the target to qualify as 1202. For the rest of us, let me catch you up on why 1202 is maybe one the largest give aways in the tax code today.
The QBSB Election came in existence in 1993. Why was the section so forgettable? Well, if I told you there was a tax credit if you formed a C corp that lowered your rate from 28% to 14% but still had an AMT phase-out – I probably lost you at C Corp. Even if I had your attention, as capital rates lowered to 20%, the QSBS stayed steady at 14% so why set a C Corporation to save 6%? Yes, 6% is a large savings but, not, when the Code required that 7% of the amount excluded from gross income be treated as a “preference” item and subject to AMT.
Continue reading “The Amazing Section 1202”
By Daniel Hemel and David Herzig
Who Holds the Trump Card on Reconciliation?
Republicans on Capitol Hill are reportedly planning to use the filibuster-proof budget reconciliation process to repeal the Affordable Care Act and overhaul the tax code. Against that background, Sam Wice says that “the most powerful person in America” in 2017 will be Senate Parliamentarian Elizabeth MacDonough, the nonpartisan official who will “determine” how much of their agenda Republicans can pass through reconciliation. This, of course, is an exaggeration: like it or not, the most powerful person in America in 2017 will be Donald J. Trump, who will wield all the power of the imperial presidency. But Wice’s post helpfully directs our attention to the budget reconciliation process, the rules of which quite likely will determine whether the Republican leadership on Capitol Hill can repeal the ACA and reform the tax laws.
Yet while one should not underestimate the importance of reconciliation, one should also not overestimate the power of the Parliamentarian in the reconciliation process. As a formal matter, the Parliamentarian’s role is advisory; and as a practical matter, the Parliamentarian has little say over significant aspects of reconciliation. Other actors—most notably, Senate Budget Committee Chairman Mike Enzi (R-Wy.)—wield at least as much influence as the Parliamentarian. Most importantly, Enzi—not MacDonough—will determine whether the provisions in any reconciliation bill violate various rules against deficit-increasing legislation being passed via reconciliation. And unlike the Parliamentarian, the Budget Committee Chairman is very hard to fire.
Reconciliation measures can begin in either or both chambers. However, since the ultimate vote on the budget measure occurs in the Senate, we’ll focus on the Senate side of the reconciliation process for purposes of this discussion. On the House side, the Rules Committee Chair and the Budget Committee Chair will wield outsized influence as well. We expect Pete Sessions (R-Tex.) to stay on as House Rules Committee Chair; as for the House Budget Committee Chair, the race is on for a replacement to Tom Price, the Georgia Republican recently tapped as Trump’s Health and Human Services Secretary.
To understand why the Budget Committee Chair is as powerful as he is, a bit of background on reconciliation may be helpful. Continue reading “The Art of the (Budget) Deal”
By: David J. Herzig (photo from Vox.com)
When a businessperson who runs many active businesses runs and wins for President, clearly there would be many second order problems associated with inherent conflicts between running corporations and the country. When President-elect Trump won the office, many of these conflicts have bubbled to the surface.
For example, to avoid a conflict of interest between benefiting one’s personal holdings and the Country’s best interests, assets of the President are placed in a blind trust. As many have pointed out, this works only when the President does not know the nature of the holdings. Putting existing businesses into a blind trust does not stop the President for knowing the underlying assets of the trust. The conflict is not ameliorated by trust structure. Nor, by the way, would it be fixed if President elect Trump divests but the family continues to own the assets.
For this post, I want to consider the current discussion related to the blind trust problem called emolument. Many prior to the election probably have not heard much about the idea of emolument. Larry Tribe and others believe that President elect Trump’s ownership of active business assets, even in a blind trust, would violate, Article I, Section 9, Clause 8 of the Constitution which prevents the President from accepting “presents” or “Emolument” from foreign states. Others, like Andy Grewal, do not believe that mere ownership of assets triggers the Emolument Clause.
If the solution to the blind trust and Emolument Clause problems is a divesture of President elect Trump’s assets as many advocate, this would trigger (to borrow a catch phrase of President elect Trump’s) huuuuuuge tax problem.
Continue reading “Trump’s Emolument Tax Problem”
By: David J. Herzig
Today Pulitzer Prize winning journalist, David Cay Johnston, Phil Hackney, and I got together for a 30 minute podcast discussion regarding the recent NY Times follow-up article about Mr. Trump’s $916 million tax loss (“NOL”).
Here is link if you missed hyper-link above: http://share.sparemin.com/recording-5131
The topics ranged from the current tax reporting regarding Mr. Trump’s 1990s tax returns to the Trump Foundation to potential criminal sanctions against Mr. Trump. It was fantastic to be a part of and I hope everyone listens.
Continue reading “Cooking The Books Podcast on Trump’s Taxes”
Every so often, Brunson and Herzig carve out a day to swap long-winded emails, then those emails are published on the Internet.
I am sure you have seen by now the NY Times story about Donald Trump’s purported tax positions from the 1990. The NY Times has been following up on a story they originally published about a month ago reporting that Mr. Trump reportedly had a $990 million net operating loss (“NOL”). After the story, there was rampant speculation about the loss.
If Mr. Trump used exclusively all of his money to buy properties or casinos or whatever and those assets were used in a trade or business and those assets went down in value, Mr. Trump would suffer a real economic loss. This real economic loss would then generate a real tax loss. At the time, most tax experts thought that Mr. Trump may have used some of his money but all used loans. I think I was quoted as saying this was likely given his prior statements about being the king of debt. Continue reading “On Trump and Tax Opinions”
By: David J. Herzig
Earlier this year, the Washington Supreme Court held that the retroactive application of the legislature’s amendment to a Business & Occupation (B&O) tax exemption revising the definition of “direct seller’s representative” to conform to the Washington Department of Revenue’s interpretation of the exemption did not violate a taxpayer’s rights under due process, collateral estoppel, or separation of powers principle.
Like most states, Washington had a B&O tax for “the act or privilege of engaging in business activities.” Under the original law, out-of-state sellers were exempt if they acted through a representative. DOT Foods shows up in Washington and sells through a wholly owned subsidiary to avoid the B&O tax.
In 1999, the Washington Department of Revenue changed its interpretation of the statute to subject DOT and others to the B&O tax. Dot challenged that change (215 P.3d 185 (Wash. 2009) “DOT I”)) and won. DOT I applied for the tax periods 2000-2006.
DOT then sought a refund for the period Jan. 2005 – Aug. 2009 (not the time period of DOT I). In the meantime, in 2010 the Washington State Legislature changed Wash. Rev. Code Sec. 82.04.423(2) in response to the DOT I ruling. The statute both retroactively and prospectively changed the statute. Based on the statutory change, the Washington Department of Revenue rejected the refund claim.
For the period covered by DOT I, DOT and Washington agreed on a settlement for a 97% refund for B&O taxes paid. For the May 2006 to December 2007 period (after DOT I), the refund request was denied. DOT challenged the retroactive application under the theories of collateral estoppel, separation of powers, and due process. DOT lost in the Washington Supreme Court and now has appealed to the US Supreme Court.
The test for whether or not retroactive tax legislation satisfies Due Process is United States v. Carlton, 512 U.S. 26 (1994). Carlton applied a rational basis test. The Court stated retroactive tax legislation would not violate due process if, “legitimate legislative purpose furthered by rational means.” According to the ACTC brief, “The Washington Supreme Court ignored the unique circumstances of the Carlton case, which involved the correction of an obvious legislative error that was identified very soon after the statute was enacted and which the taxpayer was admittedly exploiting for its own benefit.”
Continue reading “Will the Supreme Court Hear a Retroactive Taxation Case This Term?”