By: David J. Herzig
Today President Trump’s top tax advisors laid out the first details of the his tax plan. Chief economic adviser Gary Cohn and Treasury Secretary Steve Mnuchin unveiled the plan which according to Fox News, Cohn called “the most significant tax reform legislation since 1986, and one of the biggest tax cuts in American history.”
Oh, did I mention that the details of the biggest cuts were printed on a single sheet of paper?
There has been plenty of ink (and jokes) already spilled about the plan. For example, you can read Richard Rubin of the WSJ (here) or Alan Rappeport of the NY Times (here). The long and the short of the plan is it seems to very very costly. The Committee for a Responsible Federal Budget guesses it could cost $3 to $7 trillion with their estimate at $5.5 trillion. That is a lot of money!
Continue reading “We Should be Taking President Trump’s Tax Plan Seriously”
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!
I’ve been ever so slightly glum since my colleague Ann Lipton went and blogged about this game called the Unicorn Startup Simulator over at BLPB. The goal of the game is for your startup to have a billion dollar valuation by the end of the year while keeping your employees happy. You have to make a series of decisions juggling those two goals. Turns out that’s harder than one might imagine. Here is what keeps happening to me:
So, I guess the message is “don’t quit your day job”?
Anyway, I was feeling grumpy about not having cool tax games to call our own but then I went hunting around and realized, WAIT, we do have tax games! Whether they’re cool or not is another story.
Here are a couple:
Continue reading “The Games We Play”
I’m teaching depreciation in my Basic Federal Income Tax class this week. As I suspect is the case for most tax profs, our coverage of depreciation comes right after we wrap up discussion of expense taking in §§ 162 and 212 (and § 195) but before we get to § 165 losses.
Depreciation is literally my favorite topic in the entire universe to teach. I mean, if I was going to get a tattoo of a Code section on myself, it would literally be “26 U.S.C. § 168 (as amended).” No disrespect meant to 26 U.S.C. §§ 167, 179, 197 and friends. [Distraction: Here is a virtual tattoo generator. You, too, can practice getting your favorite Tax Code section inked on yourself.] I firmly believe that you can teach any number of core skills in tax class by teaching depreciation (e.g., statutory construction, policy choices, reading cross-references, political economy and legislative change, time value of money, etc.). Conversely, I also tend to think that if you can understand the depreciation statute in Basic Tax and explain it to your classmates, you can do pretty much anything in our legal profession.
Therefore, putting aside all of the reasons why cash-flow expensing may not have the effects that one might hope, I will be absolutely heartbroken if we actually end up with a cash-flow tax, because then what am I gonna talk about in tax class?
All of which brings me to today’s dilemma: Do I mention the ubiquitous #DBCFT in teaching depreciation this week? Or can I just pretend it’s not happening? If one does teach cash-flow expensing, when does one bring it up (i.e., in what order of coverage)? My inclination is to (1) explain the basics of how economic cost recovery over time works in theory; (2) talk briefly about the ACRS changes in 1981; (3) teach the Simon v. Commissioner cases (violin bows) to illustrate the policy tensions that arise once we move from true economic recovery and actual useful lives to ACRS and statutory recovery periods; (4) discuss #DBCFT as an alternative design approach, noting the possible benefits and downsides of that approach, noting that there’s some discussion in the ether right now re whether we should be doing this (and deemphasizing the border adjustment features); (5) introduce bonus depreciation concepts (§§ 168(k) and 179) as an illustration of how expensing has surreptitiously worked its way into the conversation in the guise of bonus depreciation circa financial crisis; and then (6) move right along to parsing the actual statutory elements of §§ 167 and 168 and understanding how it all stitches together.
This strikes me as a nice middle ground between (1) dorkin’ out and going #DBCFT full bore and totally losing the class, and (2) just ignoring the current debate. I’d be curious to know what other tax profs are doing with coverage here.
My pal Ann Lipton–corporate governance and securities law expert and blogger extraordinaire over at BLPB–is organizing a conference at Tulane Law School today on the topic of “Navigating Federalism in Corporate and Securities Law.” It looked so interesting that I had to leave Henry Ordower and Kerry Ryan’s fabulous Critical Issues in Comparative and International Taxation: Taxation and Migration Conference a day early to crash her party! I’ve been auditing Securities Regulation and very much feeling like a little duckling in the securities/corporate world all semester, so I’m really looking forward to sitting in on an unfamiliar conversation. I always find that “cross-training” in other fields gives me fresh perspectives on my own work.
Here is the schedule. Some of these papers are really interesting!
The Problem of Large Shareholders
(Discussant: Urska Velikonja)
The Problem of Small Shareholders
(Discussant: Ann Lipton)
- Jill Fisch (Penn), Advance Voting Instructions: Tapping the Voice of the Excluded Retail Investor
- J.W. Verret (George Mason), Uber-ized Corporate Law
What Can States Regulate?
(Discussant: Jill Fisch)
- Kent Greenfield (Boston College), Corporate Power and Campaign Finance
- Summer Kim (Irvine), Corporate Long Arms
The Line Between Corporate Law and Securities Law
(Discussant: James Cox)
- Ann Lipton (Tulane), Reviving Reliance
- James Park (UCLA), Delaware and Santa Fe
- Robert Thompson (Georgetown), Delaware’s Dominance: A Peculiar Illustration of American Federalism
The Operation of the SEC
(Discussant: James Park)
- James Cox (Duke), Revolving Elites: Assessing Capture in the SEC
- Urska Velikonja (Emory), Admissions in Public Enforcement
By: Leandra Lederman
At the 2018 AALS annual meeting (San Diego, Jan. 3-6, 2018), the Section on Agency, Partnerships LLCs, and Unincorporated Associations will be co-sponsoring a program with the AALS Sections on Taxation, Securities Regulation, and Business Associations on “The Challenges and Opportunities of Exotic Hybrids—Series LLCs, Up-C’s and Master Limited Partnerships.” In addition to featuring invited speakers, speakers (and papers) will be selected from a call for papers located at this link. The submission deadline is June 15, 2017.
By: Leandra Lederman
Usually we think of tax shelters and other tax strategies as the province of private parties. These shelters may involve accommodation parties, even foreign government infrastructure, such as transportation systems, but we tend to think of private parties as getting the tax benefits. We may not think as often about a subnational government bolstering its tax revenues at the expense of the national government, particularly via a cooperating private party’s transaction structure. But that’s what happened a few years ago in Spain.
There is a Volkswagen (VW) plant in Pamplona, a city in the autonomous community of Navarra. From 2007-2011, Navarra reportedly collected approximately 1.5 billion Euros in value-added tax (VAT) from Volkswagen for its cars manufactured at the plant there. If VW-Navarra (which is a subsidiary of SEAT) had shipped the cars directly from Navarra to Germany, presumably Navarra would have had to refund that VAT. (Cars shipped to Germany leave Spain “clean of VAT”* (translation mine)).
Instead, according to an interview with Prof. Fernando de la Hucha in this El Diario article, the basic structure was that VW-Navarra sold the cars (although without physically moving them there) to a related Barcelona company, VAESA (Volkswagen-Audi España S.A.), which is located in the Catalunya region, not Navarra. VAESA then sold them to SEAT with the very low mark-up of 5 Euros per car. SEAT, which is also in Catalunya, then sold them to VW-Germany—the transfer abroad triggering entitlement to a refund. But because the cars were sold from a city outside the Navarra region, VW’s refund claim did not go to Navarra. Instead, the Spanish national government was the one that issued the refund, which is how Navarra benefitted. (Catalunya did not issue the refund because, unlike Navarra, does not have a fiscal agreement with Spain that allows it to administer and collect taxes—only Navarra and the Basque regions do). The result was that Volkswagen was refunded the taxes it paid but Navarra profited at the expense of the Spanish government. (Spain has a credit-invoice VAT. Technically, the amount that Navarra retained was the VAT that VW-Navarra paid, which was the VAT on its sales to VAESA minus the VAT its suppliers had paid.)
Here is a simple diagram of the transaction, along with a map of Spain’s regions. (Navarra is in the north, bordering France; Catalunya—that’s the Catalan spelling—is in the northeast, also bordering France.)
Continue reading “When a Tax Strategy Benefits a Subnational Government”
As Daniel Hemel points out in a cross-linked post on Whatever Source Derived, if Congress repeals the Affordable Care Act (ACA), it is possible that Code section 7701(o) will go with it. (Section 7701(o) and its accompanying penalty were included in the ACA as a revenue raiser.) This raises the question of what repeal would mean for the economic substance doctrine specifically and for judicial anti-abuse rules more generally. This post makes three main points:
- Repeal of Code section 7701(o) is not a good idea. At a minimum, its potential repeal should be considered separately from the ACA, as it has no substantive link to the ACA.
- Repeal of the codified economic substance doctrine should not affect other judicial doctrines.
- Repeal of Code section 7701(o) would not eliminate the judicially developed economic substance doctrine. Daniel has provided a couple of arguments in support of that view, drawing on statutory-interpretation principles, and I add an argument based on the language of section 7701(o) itself.
First, anti-abuse rules are valuable. They help prevent taxpayers from engaging in artificial transactions designed to produce artificial tax benefits, such as non-economic losses used to offset unrelated income. Some of these transactions may not actually “work” under the technical provisions of the Code, Treasury regulations, or IRS guidance. However, abusive tax shelters typically are structured to take advantage of the literal language of the tax laws. If (and, ideally, only if) technical challenges fail, anti-abuse doctrines help prevent misuse of the tax laws. Continue reading “The Status of Judicial Anti-Abuse Doctrines if Code Section 7701(o) Were Repealed”
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”