How the Espinoza Tax Credits Work

By Sam Brunson

On Tuesday the Supreme Court issued its opinion in Espinoza, holding that Montana couldn’t prohibit “student scholarship organizations” from making tuition payments to religiously-affiliated private schools. I wrote about the decision over on the Nonprofit Law Prof Blog.

After writing the post, I saw this entry in a SCOTUSblog symposium on the Espinoza decision. And, like the authors of that piece, I found the Supreme Court’s decision unsurprising (for reasons that I mention on the other blog). But one part of their analysis jumped out at me as reflecting a critical misunderstanding of the way Montana’s tax credit scheme worked.

Specifically, the authors wrote:

The secular instruction in these schools means that the state gets full secular value for its money. There are complications in putting a dollar amount on this secular value. It might be the schools’ full cost, given that they satisfy compulsory-education requirements. Or some of the cost might be attributed to teaching religion. But one thing we know: the secular value is far more than zero. A $2,250 tuition voucher (the amount involved in the court’s 2002 decision in Zelman v. Simmons-Harris) can easily be allocated entirely to secular value. All the more so in Espinoza, where the tax credit was capped at $150.

(Emphasis mine.)

This paragraph isn’t critical to the blog post; it’s not mentioned in the majority’s analysis. And yet I’m afraid it may have been in the back of the mind of the Justices. Because, after all, what’s $150 out of private school tuition? Continue reading “How the Espinoza Tax Credits Work”

Taxing Student Athletes: An Explainer

By Sam Brunson

About a month ago, California Governor Newsom signed the Fair Pay to Play Act, which allowed California college athletes to be paid for the use of their image, name, and likeness. Other states, including Illinois, have proposed similar legislation. And today, the NCAA caved; though its concession is not entirely clear, it looks like the NCAA has paved the way to allow NCAA athletes to make money off of their image.

For some reason, this has provoked backlash by Senator Burr of North Carolina. On Twitter, he announced that he plans on introducing legislation that would tax college athletes who accepted payment for the use of their image, etc., on their scholarships. Continue reading “Taxing Student Athletes: An Explainer”

The Kiddie Tax Needs a Better Fix Pt. 2

By Sam Brunson

Image by annca. Pixabay licence

As I explained in my previous post, the new kiddie tax is an absolute mess, with unintended and (I assume) unforeseen consequences that significantly harm, among others, poor college students and the children of service members killed in action. How is Congress going to fix this?

Poorly, I assume. And insufficiently.

I saw on Twitter yesterday that Rep. Cindy Axne is cosponsoring the Gold Star Family Tax Relief Act. Under the proposed legislation, the definition of “unearned income” will exclude survivor benefits received by the children of deceased service members. If this legislation were to pass, children of military members killed in action would no longer pay taxes at the top marginal rate on their survivor’s benefits. Continue reading “The Kiddie Tax Needs a Better Fix Pt. 2”

The New Kiddie Tax Needs a Better Fix Pt. 1

By Sam Brunson

Picture by Carissa Rogers. CC BY 2.0

One of the first articles I published as an academic was on the kiddie tax. It was a sleepy corner of the tax world; most of the academic literature on the kiddie tax came from the 1980s.[fn1] And, for its first three decades, the kiddie tax stayed almost exactly the same.[fn2] Then, in a little-noticed provision of the TCJA, Congress fundamentally changed the kiddie tax. In response, I addressed the kiddie tax a second time in a piece for Tax Notes entitled Meet the New “Kiddie Tax”: Simpler and Less Effective. [Paywall] It turns out that I underestimated the ways in which is was not only less effective, but actually dangerously counterproductive.

But first, a quick primer into what the kiddie tax was and what it has become. In 1986, Congress had become worried that wealthy taxpayers were shifting income-producing assets to their children so that they could lower their tax bills. The tax game would go something like this: wealthy dentist father gives (or, I suppose, sells for a nominal amount) his x-ray machines to his 7-year-old daughter. He then leases back the x-ray machines for, let’s say, $10,000 a year. In 1985, the top marginal tax rate was 50%. Assuming our dentist was in that tax bracket, he could deduct the $10,000 he paid to lease the x-ray machines. Meanwhile, assuming that his 7-year-old daughter didn’t have any additional income, she would have been in the 16% tax bracket. According to Rev. Proc. 84-79 (and ignoring any exemptions or deductions she might have), the daughter would pay taxes of $1,054 on the $10,000 of income. Meanwhile, Dad’s $10,000 deduction saved him $5,000 in taxes. By shifting passive income to his daughter, then, Dad saved almost $4,000.[fn3] (Note that it didn’t have to be dental equipment: it could be any income-producing property). Continue reading “The New Kiddie Tax Needs a Better Fix Pt. 1”

Jussie Smollett and the Illinois Film Tax Credit

By Sam Brunson

By Ben P L. CC BY-SA 2.0

On Tuesday, Joe Magats, first assistant state’s attorney for Cook County, announced that he was dropping the charges against actor Jussie Smollett. Instead of a trial and punishment, Smollett agreed to forfeit his $10,000 bond and do community service.

Cook County prosecutors say this is a relatively normal type of alternative prosecution, one that prosecutors have recommended for over 5,700 offenders. It allows prosecutors to use their resources to prosecute violent offenders.

Not surprisingly, there’s some outrage about this alternative prosecution, notably from Chicago Mayor Rahm Emanuel and CPD Superintendent Eddie Johnson. But this is a tax blog, not a criminal justice blog, so questions about the justice (or not) of dropping Smollett’s prosecution are outside of our usual scope. Which is why I’m going to focus, instead, on Illinois Representative Michael McAuliffe and his terrible, horrible, no good, very bad bill. Continue reading “Jussie Smollett and the Illinois Film Tax Credit”

More on the College Admissions Scandal

By Sam Brunson

On Wednesday, I posted about how tax law played a central role in the college admissions scandal. As I’ve read through a little more of the affidavit, I decided to highlight two additional detail in this whole scandal, details that suggest that, for at least some of the participants, the tax consequences were very important.

Bruce Isackson and Facebook Stock

Bruce Isackson is the president of WP Investments, a real estate investment and development fund.[fn1] According to the affidavit, he used the fake athlete thing (soccer for the older daughter, rowing for the younger) to get two daughters into USC. He seems to have also paid for his younger daughter to get a better ACT score.

What’s interesting for purposes of this post is how he paid. Continue reading “More on the College Admissions Scandal”

Key Worldwide Foundation and College Admissions Scams

By Sam Brunson

When I first read about the massive college admissions scam, I read it for roughly the same schadenfreude as everybody else. It was an interesting—and frankly, kind of pathetic—story of wealth and entitlement.

And then I read the affidavit supporting the criminal indictment. And I learned that, as much as this is a story of wealth and entitlement, it’s more than that: this is a story that revolves around taxes. And specifically, the abuse of a tax-exempt organization.

There seem to have been two main schemes to get participants’ kids into schools they wouldn’t have otherwise qualified for. The first involved cheating on entrance exams. The second involved bribing athletic directors and others to designate their kids as athletic recruits (often in sports the kids didn’t play), and , each of which had its own fee structure. But each scheme had something in common. The recipient of the payments was Key Worldwide Foundation. Continue reading “Key Worldwide Foundation and College Admissions Scams”

A Mission From God: Blues Brothers and Tax

By Sam Brunson

On February 1, Amazon Prime Video started streaming Blues Brothers. Now, in spite of its being one of the great movies of the 20th century, and having one of the greatest soundtracks ever, I hadn’t seen it in years, and definitely not since I moved to Chicago. So I decided to watch it, both because I love the movie and because I wanted to see its view of Chicago now that I know this city.

I remembered that the plot revolved around Jake and Elwood trying to raise $5,000 for the orphanage they grew up in or the orphanage will be closed, but I’d forgotten that the $5,000 was to pay the orphanage’s property tax assessment:

I’d also never watched a movie with Amazon’s X-Ray feature before. And X-Ray announced that the motivation for their mission from God is a factual error, because Illinois doesn’t tax church property.

Is that true? Continue reading “A Mission From God: Blues Brothers and Tax”

#AcademyAwards2019, Swag Bags, and the IRS

By Sam Brunson

Every year, it seems like there’s something in the news about the Academy Awards swag bags (valued at $100,000 this year!) and taxes. And, since the Academy Awards are tonight, and since this is a tax blog, we might as well say something about the taxation of swag bags. And wouldn’t you know it: an article had a decently bad take on the taxation, giving me a hook for a tweetstorm, which I now reproduce here for your reading pleasure. Happy Academy Awards Day!

Continue reading “#AcademyAwards2019, Swag Bags, and the IRS”

Redacted History: Tax Privacy and the KKK

By Sam Brunson

Tax Lien by Nick Youngson, CC BY-SA 3.0, Alpha Stock Images, Original image at The Blue Diamond Gallery.

A year and a half ago, I learned that in the 1940s, the IRS revoked the Ku Klux Klan’s tax exemption and sued it for almost $700,000 in back taxes. Two years later, the IRS filed a tax lien against the KKK’s assets. While that may not have been the death blow to the 1920s iteration of the KKK, it was certainly part of the death blow.

I’ve since learned a lot more about the whole story, including how the KKK could claim exemption in the first place. I’ve read dozens of contemporary (and retrospective) newspaper articles about the revocation. Heck, I’ve read through a couple Stetson Kennedy archives. I’m dying to write an article about this piece of history.

There’s only one problem: I don’t know why the KKK lost its exemption.

Continue reading “Redacted History: Tax Privacy and the KKK”

Michigan and the Parsonage Allowance

 

I’ve been following Gaylor v. Mnuchin, the parsonage allowance case, for years now. A couple months ago, I got to hear oral arguments the second time it went up to the Seventh Circuit. And I’ve been waiting eagerly since for the court to issue its decision.

As of 11:18 pm Central time on January 30, the court had not yet issued its opinion. But, in spite of the case being fully briefed and argued, one update to the case recently occurred: the state of Michigan changed its mind.   Continue reading “Michigan and the Parsonage Allowance”

Elizabeth Warren and the Wealth Tax

By United States Senate, Public Domain

By Sam Brunson

It’s not even an election year, but the last couple weeks have been exciting for tax policy fans. First was Rep. Alexandria Ocasio-Cortez inserting the idea of a 70% top marginal rate into the public conversation. Then today, Sen. Elizabeth Warren proposed a wealth tax on taxpayers with household wealth in excess of $50 million. While she hasn’t released details, and the news reports aren’t completely clear, I’m assuming that households would pay 2% of their net worth in excess of $50 million, and an additional 1% on their wealth in excess of $1 billion.[fn1]

Can the government do that? Maybe, but probably not with a traditional wealth tax.  Continue reading “Elizabeth Warren and the Wealth Tax”

The Fyre Festival: Intro to Ja Rule’s Tax Troubles

By Sam Brunson

Photo by Eduardo Santos. CC BY 2.0

Like much of America, I watched a Fyre Festival documentary last week. I chose Hulu’s Fyre Fraud over Netflix’s Fyre: The Greatest Party That Never Happened because I only had time for one, and Fire Fraud had an interview with Billy McFarland. (I’ve since heard great things about Netflix’s documentary, too, so I’ll probably watch it eventually.)

About nineteen and a half minutes into the documentary, we’re introduced to Ja Rule; we see him in an interview (with Wendy, apparently), who says to him, “So you spent two years in prison.”

He responds, “Yeah, I went in on my state charge for the gun charge, and they ran it concurrent with my tax stuff.”

Now, Ja Rule’s tax troubles are probably the least interesting part of the documentary (and are over, iirc, as soon as he laughs after saying “tax stuff”). But I always find celebrity tax evasion interesting, so I thought I’d run it down a little. Continue reading “The Fyre Festival: Intro to Ja Rule’s Tax Troubles”

Evelyn Brody in the Gallery

By Sam Brunson

Evelyn Brody with her painting “When in French”

Have you ever wondered what tax professors do when they’re not doing tax? In the case of Evelyn Brody (Chicago-Kent College of Law), one answer is art.

I’m sure most people who read this blog are familiar with Evelyn’s academic work, but if you’re not, she teaches and writes broadly in the income tax and nonprofit law areas. She also paints.

And when I say paints,” I mean it. Almost two weeks ago, she opened “Suspended Animation,” an exhibition of her pastels at the Leslie Wolfe Gallery. This afternoon I went to the reception she hosted at the gallery. Continue reading “Evelyn Brody in the Gallery”

Coming Soon: Trump’s Tax Returns (or Maybe Not)

By Sam Brunson

As we’re all acutely aware, in his presidential campaign, Donald Trump flouted decades of history by refusing to release his tax returns. And given that (a) the history was based on norms, not law, and (b) the Republican-controlled Congress did nothing to enforce the norms (or transform them into law), he continued to flout that norm throughout the first two years of his presidency.

But on January 3, 2019, Democrats will gain control of the House. And Democratic Representatives have made pretty clear that one of their first agenda items will be to request Trump’s tax returns. So does that mean we’ll finally get access to his tax returns?

Maybe. (But probably not.) Continue reading “Coming Soon: Trump’s Tax Returns (or Maybe Not)”