Rockefellers, Pratts and Private Cemeteries

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. [1]

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”

Law School Loans, REPAYE, and Taxes [Updated]

Student loansBy: Sam Brunson

Friday, the New York Times‘s DealBook section had an article about law school debt. (H/t Paul Caron.) It focused on John Acosta, a recent Valparaiso graduate who is starting a defense and family law practice.

Although he’s done well for himself so far—top third of his class, passed the Bar Exam on his first attempt, and successfully convinced a former prosecutor to join him—he has a significant problem: debt. From the article:

Yet in financial terms, there is almost no way for Mr. Acosta to climb out of the crater he dug for himself in law school, when he borrowed over $200,000. The government will eventually forgive the loan — in 25 years — if he’s unable to repay it, as is likely on his small-town lawyer’s salary. But the Internal Revenue Service will treat the forgiven amount as income, leaving him what could easily be a $70,000 tax bill on the eve of retirement, and possibly much higher. [Emphasis added]

Up to $70,000 in taxes, or maybe more? Could that be right? And, if so, what’s up with that? Continue reading “Law School Loans, REPAYE, and Taxes [Updated]”

Consumer Financial Regulation Meets Income Share Agreements

By: Shu-Yi Oei

On Wednesday, I spoke at the National Association of Consumer Credit Administrators (NACCA) 81st Annual Meeting and Regulators’ Training Symposium in Minneapolis. The panel was “Trends in Lending: Emerging Loan Products,” and the topic I was asked to discuss was income share agreements (ISAs).

The Powerpoint slides from the talk are here. The last slide contains a partial source list for those who’d like to read more about income share agreements.

I have some thoughts, following the presentation, and after sitting in a couple of (non-tax) panels on lending and regulation:

(1) Legal Scholarship and Restlessness

The NACCA invitation supports my longstanding theory about restlessness and legal scholarship. The theory is that two (or three, or four) years after you did the project (and are likely bored with it) is when anyone else notices that you’ve even done it at all. Therefore, to me, a big part of the scholarly endeavor is really the ongoing fight against your own internal boredom-clock (which, if you’re like me, is likely a tad…accelerated).[fn1]

In this case, Diane Ring and I wrote about ISA transactions back in 2014. See Human Equity? Regulating the New Income Share Agreements, 68 Vand. L. Rev. 681 (2015). And then we became convinced that the industry had sputtered and tanked and so our attention transitioned to other projects.[fn2] But folks I spoke to at the NACCA conference—as well as others I’ve have talked to—assure me that this is not so! Fast-forward to 2016 and new offerings by Cumulus Funding and Purdue University suggest that perhaps the ISA market is not entirely dead after all. Also, those ISAs entered into between 2012-14 (offered by companies like Pave and Upstart) have been percolating in the ether, and the full array of their tax and other regulatory consequences are presumably becoming clearer as time goes on. State regulators are now starting to pay attention and think about how to weigh in. So the time seems right to refocus the attention on an old scholarly project.

Continue reading “Consumer Financial Regulation Meets Income Share Agreements”

Did John Oliver just give away some CODI income on Last Week Tonight?

By: Shu-Yi Oei

So John Oliver just forgave $15 million of debt on his talk show.

See video @ around 17:15.

Specifically, Oliver apparently set up a debt-buying company (CARP), which bought $15 million worth of incurred medical debt of nearly 9,000 people for $60,000, less than half a cent on the dollar. And then he forgave the $15 million of debt on television. The Washington Post reports that “this is the largest one-time giveaway ever on television, beating out Oprah Winfrey’s famous “you get a car! You get a car!” episode, which cost that show $8 million.” (Smart talk show economics, to top Oprah’s giveaway while only paying $60,000 for the debt.)

Of course, because tax professors love talking about the tax consequences of Oprah’s free car giveaway, I wondered whether this $15 million debt forgiveness event was going to result in cancellation of indebtedness income to some of the debtors whose debt was forgiven. As tax people know, IRC Section 61(a)(12) provides that income from the cancellation of indebtedness is includible in gross income. But IRC Section 108 provides that there is no gross income in certain circumstances–for example, if the debtor is in Title 11 bankruptcy, or is insolvent, or if the debt is certain types of real property related indebtedness.

Would CARP have to send these folks a Form 1099-C?  And would some of them then have CODI income due to the debt forgiveness?

Continue reading “Did John Oliver just give away some CODI income on Last Week Tonight?”

A Tax Professor Feels a Little at Sea

boaty
Credit: https://nameourship.nerc.ac.uk

Last Thursday, Tulane Law School held its annual faculty scholarly retreat, which basically means we cloistered ourselves in a downtown conference room and workshopped eight papers over the course of a day. ’twas a nice end-of-semester opportunity to appreciate and engage with everybody’s work. I got to be discussant on a paper by my colleague, Martin Davies, Cross-Border Insolvency and Admiralty: A Middle Path of Reciprocal Comity, a working version of which was recently published in the Comité Maritime International 2015 Yearbook.  Martin is the Director of Tulane’s Maritime Law Center, and he has kindly given me permission to blog the paper here.

Warning: This blog post discusses areas of law that are only marginally related to tax law, which some may find unsettling. On the other hand, the paper implicates some interesting jurisdictional and distributional issues that parallel some of those found in international tax.

Continue reading “A Tax Professor Feels a Little at Sea”

Tax Policy and Puerto Rico’s Fiscal Crisis: An Insolvency Primer and Some Tax Things to Read

By: Shu-Yi Oei

I’ve been following the story of Puerto Rico’s default on its public corporation debt repayment obligations, which has been unfolding over the last several months. The latest happened on Monday, May 2 (well, technically Sunday), when Puerto Rico missed a major debt payment that was due to the bondholders of its Government Development Bank (GDB).

The topic has been well covered from the sovereign debt/insolvency angle over on Credit Slips, so I won’t go into that in detail here. As I understand it, the main points are these:

(1) Puerto Rico owes around $70 billion total outstanding debt to its creditors, of which a significant chunk is public corporation debt. Public corporations are corporations owned by the government of Puerto Rico. For example, the GDB is a public corporation.

(2) Unlike U.S. municipalities such as Detroit, Puerto Rico entities aren’t considered debtors for purposes of Chapter 9 of the U.S. Bankruptcy Code. They therefore don’t have access to the Chapter 9 municipal bankruptcy process. See 11 U.S.C. § 101(52). This is a bit of a head scratcher.

(3) In 2014, Puerto Rico’s legislature passed a law, the Puerto Rico Public Corporation Debt Enforcement and Recovery Act, which created a mechanism analogous to Chapter 9 bankruptcy by which Puerto Rico public corporations can restructure their debt. See Puerto Rico Passes New Municipal Reorganization Act: Puerto Rico Public Corporation Debt Enforcement and Recovery Act, 2014 P.R. Laws Act. No. 71, 128 Harv. L. Rev. 1320 (2015).

(4) Some bondholders filed a lawsuit, contending that Chapter 9 of the U.S. Bankruptcy Code preempts the Recovery Act. The First Circuit ruled that the Recovery Act is preempted. Franklin California Tax-Free Trust v. Puerto Rico, 805 F.3d 322 (1st Cir. 2015). The Supreme Court granted cert and heard oral arguments on March 22, 2016. No decision yet. For one scholar’s take on the issue, see Stephen J. Lubben, Puerto Rico and the Bankruptcy Clause, 88 Am. Bankr. L.J. 553 (2014).

(5) In light of all this, some have called for U.S. Congressional action, and there’s been legislation drafted to address Puerto Rico’s fiscal crisis that will allow for both restructuring and reform going forward. The House Committee on Natural Resources put forth a draft bill, the Puerto Rico Oversight, Management & Economic Stability Act (“PROMESA”). See also here for a helpful executive summary that accompanied an earlier draft. So far, that legislation has stalled, but they’re still trying.

There are many important issues in play, about which various stakeholders and commentators disagree. Some big ones are: (a) whether the draft PROMESA legislation raises retroactivity issues that make it unfair to bondholders (including mutual funds and their investors) who may be subject to restructuring ex post without having had notice of that possibility ex ante; (b) relatedly, whether creating a bankruptcy-like restructuring process for Puerto Rico is bad for bondholders because it prevents holdout creditors from holding up restructuring negotiations, (c) how much oversight and sovereignty Puerto Rico should cede (for example, different stakeholders feel differently about the installation of an oversight board); (d) the extent to which austerity measures are feasible and should be imposed [fn1], and (d) and what substantive reforms should be put enacted going forward.

So where does tax come in?

Continue reading “Tax Policy and Puerto Rico’s Fiscal Crisis: An Insolvency Primer and Some Tax Things to Read”