The Surly Subgroup Turns One!

Time flies when you’re having fun, I guess. Today is the one-year blogiversary of the Surly Subgroup. What started off as a group-blogging experiment hatched at last year’s Critical Tax Conference at Tulane Law School has provided quite a bit of entertainment for Surly bloggers and our guest bloggers, and hopefully for our readers as well.

It’s obviously been a big year on tax and other fronts. Since our inception, we’ve published 206 blog posts on a variety of topics. And we’ve drawn readers from 140 different countries.

Surly regulars and guest bloggers have covered various tax-related issues surrounding politics and the 2016 election—including disclosure of presidential tax returns, the Emoluments Clause, the Trump Foundation, and the Clinton Foundation. We’ve written about churches, 501(c)(3)s and the IRS treatment of non-profits. We’ve discussed the tax reform proposals of the 2016 presidential candidates and the #DBCFT. We’ve written several administrative law posts about Treasury Regulations and rulemaking.

Politics aside we’ve also covered other important issues in tax policy—including taxation and poverty, healthcare, tax policy and disabilities, tax compliance, and tax aspects of the Puerto Rico fiscal crisis. We’ve discussed several issues in international and cross-border taxes, touching on the EU state aid debate, the CCCTB, taxation and migration, the Panama Papers, tax leaks more generally, and tax evasion in China.

We hosted our first ever online Mini-Symposium on Tax Enforcement and Administration, which featured posts by ten different authors on a variety of tax administration topics. The Mini-Symposium was spearheaded by Leandra Lederman. Leandra had organized and moderated a discussion group on “The Future of Tax Administration and Enforcement” at the 2017 AALS Annual Meeting, and many of the discussion group participants contributed to the online symposium. We hope to organize future online symposia on other topics.

We’ve blogged about various conferences, workshops, and papers, both tax related and not-so-much tax related. We’ve also had lots of fun writing about taxes in popular culture – Surly bloggers and guest bloggers have written about the tax aspects of Pokémon Go, tax fiction, music-related tax issues (Jazz Fest! Prince! “Taxman”!), soccer players, dogs, Harry Potter fan fiction, Star Trek, and John Oliver. Surly bloggers even recorded a few tax podcasts!

In short, it’s been a busy year, and we’ve had a lot of fun with the Surly platform. We hope you have as well. Going forward, we’re going to keep the blog posts coming. We also hope to draw more regular and guest bloggers and to organize other online symposia.

Thanks for reading!

Call for Papers: 18th Global Conference on Environmental Taxation (Tucson, AZ, Sept. 27-29, 2017)

Here’s another call for papers:

Please plan ahead for the 18th Global Conference on Environmental Taxation! The deadline for submitting abstracts in response to the Call for Papers is May 1, 2017 and early submissions are welcome. For information about the conference and the Call for Papers, click here.

This year the conference’s focus is: Innovation Addressing Climate Change Challenges: Local and Global Perspectives

We are in a pivotal and defining time for global discourse on public/private sector response at all levels of government (national, state, indigenous, provincial, municipal, city, and local), to the impacts of climate change. And, GCET18 is well-positioned in its role as the leading global forum for innovative exchanges on principles, practices, and policies with respect to environmental taxation and market-based instruments.

The conference will explore various topics :

  • Climate change policy, biodiversity protection, environmental stewardship, pollution control, water conservation, land degradation, renewable energy, mining and rehabilitation
  • Market instruments such as carbon pricing, emissions trading schemes, other environmental taxes, subsidies, direct action or spending programs and tax concessions both positive and perverse.

Selected papers from the Global Conferences are published in Critical Issues in Environmental Taxation.

The conference this year will be hosted by the University of Arizona, James E. Rogers College of Law, and the Conference Chair is Mona Hymel. If you have questions, please contact her at law-gcet18@list.arizona.edu.

We hope to see you in Tucson!

Prof. Janet E. Milne
Director, Environmental Tax Policy Institute
Co-editor, Handbook of Research on Environmental Taxation
Vermont Law School, USA

 

The (Near) Future of Treasury Regulations

cfrToday’s Tax Notes reports[fn1] that the IRS has announced that it will not release pretty much any new formal guidance (including revenue rulings and revenue procedures) for the foreseeable future.[fn2]

Why not? A confluence of an Executive Order and a January 20 memorandum. The EO, “Reducing Regulation and Controlling Regulatory Cost,” requires that, for every new regulation issued, two existing regulations be eliminated.

The January 20 memorandum further prohibits agencies from sending regulations to the Federal Register until they’ve been reviewed by an agency or department head appointed by Trump. Continue reading “The (Near) Future of Treasury Regulations”

Deficient Notices of Deficiency and the Remedy Question

By: Leandra Lederman

In QinetiQ v. Commissioner, the Court of Appeals for the Fourth Circuit refused to invalidate a Notice of Deficiency that simply stated “that QinetiQ ‘ha[d] not established that [it was] entitled’ to a deduction ‘under the provisions of [26 U.S.C.] § 83.’” The taxpayer had argued that the Notice “failed to provide a reasoned explanation for the agency’s final decision, as required by the Administrative Procedure Act (APA), 5 U.S.C. §§ 701-06.” The court’s analysis of this issue focuses on the distinction between court review that is subject to the APA and court review that is not. The QinetiQ court found that review of IRS deficiency actions, which predates the APA, falls into the latter category.

The QinetiQ case can readily be grouped with Mayo Foundation and the post-Mayo cases focused on the intersection of administrative law with federal tax law. In a recent post on the Procedurally Taxing blog, Bryan Camp does a nice job of analyzing the case in that context. But another perspective on the case is that the APA argument in QinetiQ is the latest packaging of some taxpayers’ complaints about uninformative Notices of Deficiency. In fact, QinetiQ also argued that the Notice violated Code section 7522, which requires various IRS notices, including Notices of Deficiency, to “describe the basis for, and identify the amounts (if any) of, the tax due, interest, additional amounts, additions to the tax, and assessable penalties included in such notice.”

As I wrote over two decades ago, in one of my first articles, “‘Civil’izing Tax Procedure: Applying General Federal Learning to Statutory Notices of Deficiency,” 30 U.C. Davis L. Rev. 183 (1996), the conflicts and confusion over the validity of Notices of Deficiency stem from two issues. The first is that courts often focus on only one of the Notice’s functions in isolation, such as its jurisdictional role as the “ticket to Tax Court” in deficiency cases. My 1996 article argued that the Notice of Deficiency not only plays that role, it also provides notice to the taxpayer (like civil process) and acts as an inchoate complaint, helping to frame the issues if a Tax Court case ensues. As I explain there, less content should be required for jurisdictional purposes than to frame the content of the litigation. Code section 7522 arguably reflects this idea, as I’ll explain further below. Continue reading “Deficient Notices of Deficiency and the Remedy Question”

Budget Reconciliation Process and Obamacare

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”

DC Circuit Seems to have Decided IRS Violated Constitution Before Trial in True the Vote Appeal.

By: Philip Hackney

graphics-882729_1280In 2014, a District Court dismissed (based on 12(b)(6) and 12(b)(1) motions) the complaint of a number of conservative organizations who alleged that the IRS “targeted” them by subjecting them to greater scrutiny in their applications for tax exemption. The lead organization, True the Vote, sought 501(c)(3) charitable organization status; the others primarily sought 501(c)(4) social welfare organization status. The world became aware of this targeting controversy in May 2013 when Lois Lerner, the head of the Exempt Organizations division of the IRS apologized to the Tea Party and other conservative groups for how the IRS treated their applications. To this day Taxprof Blog continues the IRS Scandal post over three years later dedicated at least in part to this controversy.

The primary complaints were the second and fifth claims: (2)  the IRS violated the organizations First Amendment rights to freedom of speech, and (5) the IRS violated the Administrative Procedures Act. The District Court concluded that because the IRS had granted exempt status to these organizations, the complaints were moot. True the Vote appealed this dismissal to the DC Circuit Court of Appeals.

Last week the Circuit Court breathed new life into claims 2 and 5. Though the Court found that some of the complaints were moot (including Bivens complaints against IRS employees and a claim of violation of 6103 disclosure rules), it allowed claims 2 and 5 forward because it found that the IRS had not voluntarily ceased its unlawful actions.

In reading the opinion, I find astonishing that the Circuit Court appears to have already concluded, without trial, that the IRS acted unconstitutionally. I recognize that for a 12(b)(1) motion the court is to assume the complaint true, but the court appears to have done much more than make assumptions. I focus on this issue. Continue reading “DC Circuit Seems to have Decided IRS Violated Constitution Before Trial in True the Vote Appeal.”

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.

IRS Scrutinized Mostly Conservative Nonprofits: Evidence of Targeting?

By: Philip Hackney

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Documents recently released in a court case demonstrate that 282 of 426 organizations caught in the IRS political advocacy, “Tea Party,” nonprofit organization net that caused such a hullabaloo three years ago, were in fact conservative. This comes three years after Lois Lerner apologized to Tea Party groups on behalf of the the IRS because, she said, it “inappropriate(ly)” selected these conservative groups’ applications for tax exemption for scrutiny based on name alone rather than legal cause.

An NPR report by Peter Overby concludes about the new information: “Whatever the IRS meant to do, this hodgepodge of a list illustrates how the agency bollixed the nonprofit application process.” In this post, I examine this seemingly “common-sense” claim and find it wanting. Additionally, because I have written publicly about this matter both at the time and more recently. I re-examine my conclusions in those writings in light of this new information.

Early on, I assumed that only about 1/3rd of the organizations caught in the IRS net were conservative. I made this assumption based on the TIGTA report because it noted that 96 of 298 applications, or 1/3rd of the organizations, were Tea Party, Patriot or 9/11 groups. I left wiggle room in my writing, but in the back of my mind, this was my assumption. I assumed TIGTA would have reported every conservative group that was in the lot. But, it turns out that about 2/3rds of the organizations  were conservative. Thus, my assumption was wrong. The vast majority of the organizations caught in the net were conservative. Nevertheless, I don’t think this new information demonstrates some additional level of bungling by the IRS that was hitherto unknown. And, frankly, a list like this with little context does nothing to tell us about whether the IRS was fair or not.¹ Continue reading “IRS Scrutinized Mostly Conservative Nonprofits: Evidence of Targeting?”

Dark Days: Blindfolding Nonprofit Regulators

By: Philip Hackney.

The Ways and Means Committee voted Thursday in favor of a bill, H.R. 5053, that would seriously hamper the ability of the IRS to enforce charitable tax law and nonprofit tax law generally. It is a bad-no-good-bill, that comes from folks who champion protection from the IRS, but whose real motive is to make it possible for wealthy individuals to act without hindrance in influencing political campaigns and politics generally. It emanates not from a place of conservatism, but a place of reactionarism and plutarchism (neither of which are words, but both of which probably should be :)). The Koch brothers support this bad bill for a reason.

The Bill will harm IRS regulation and make our already relatively secret-and-subject-to-corruption political contribution system more secret and more subject to corruption (the issue that democrats and interest groups focused upon in attacking the bill). The harm though can be expected to extend to the ability of the federal government and states to regulate individuals using nonprofits to accomplish their ends. Sometimes people running nonprofits do bad things. It will increase the dark in which our regulators try to police the nonprofit sector. Unfortunately, the IRS leant a hand to those trying to give donors greater secrecy as high level officials discussed eliminating schedule B back in December 2015. It is still not clear to me what they were thinking, but I genuinely hope we do not make such a foolish choice. As explained below, we have long recognized a regulatory need for this particular information.

What does this dastardly, seemingly well-intentioned, bill do? Continue reading “Dark Days: Blindfolding Nonprofit Regulators”

Charitable Organizations and Marijuana?

In Denial 201615018 (released April 8, 2016 and for which I can only find a Tax Notes link) the IRS denied the charitable organization application of a nonprofit organization organized “to provide a way for your members to collectively and cooperatively cultivate and distribute medical marijuana for medical purposes to qualified patients and primary caregivers who come together to collectively and cooperatively cultivate physician-recommended marijuana.” The IRS denied the organization’s applications on two bases: (1) a charitable organization cannot engage in illegal activities and the distribution of marijuana is illegal under federal law; and (2)  it provided too much private benefit. I will focus only on the first basis.

Ben Leff and I have previously debated the issue of marijuana distribution and tax exemption. Ben contended that under certain circumstances a social welfare organization under 501(c)(4) could form to distribute marijuana and operate in a tax-exempt vehicle. The reason to try to do this instead of operating in a taxable vehicle is that under section 280E federal tax law prohibits marijuana distributors from deducting trade or business expenses. While I disagreed with Ben, neither of us argued that a charitable organization could engage in the distribution of marijuana. Both of us, and Ben should absolutely chime in, believed that the public policy/illegality limitation on charitable organizations is absolutely clear on this front: engaging in an illegal activity as a substantial purpose just does not cut it under charitable tax rules. Continue reading “Charitable Organizations and Marijuana?”