The Senate Tax Bill’s “Clarification” of Independent Contractor Status: Tax and Employment Law Tradeoffs

By: Diane Ring

Shu-Yi Oei and I have been tracking the recent tax reform developments as well as a couple of proposed tax bills that deal with worker classification, information reporting, and tax withholding. Based on a description prepared by the Joint Committee on Taxation, it looks like the Senate Tax Bill is going to include a new safe harbor provision guaranteeing worker classification as an independent contractor and will make changes to independent contractor withholding and information reporting. We posted our analysis of this proposal and its potentially serious implications on TaxProf Blog: The Senate Bill and the Battles Over Worker Classification.

Our main points:

1. Not just tax: This worker classification safe harbor is not just about tax, it will likely have impacts on employment/labor law outcomes and protections as well.

2. Not just gig workers: Based on the Joint Committee description, the proposal is not limited to gig economy workers —anyone who meets the safe harbor requirements (which are pretty easy to satisfy in many cases) can be classified as an independent contractor. This may have the effect of encouraging employers to push workers into work relationships that come within the safe harbor. Or, in certain cases, it may facilitate the strategic movement of higher-income workers into independent contractor status — see point 4 below.

Continue reading “The Senate Tax Bill’s “Clarification” of Independent Contractor Status: Tax and Employment Law Tradeoffs”

Paradise Papers: Day 2

By: Diane Ring

The most recent big financial data leak, dubbed the Paradise Papers, is now in full swing in the media. On Monday, Shu-Yi Oei blogged the initial release and its immediate takeaways (including the revelation that U.S. Commerce Secretary Wilbur Ross continued to hold investments in a shipping business that had business connections to key Russian figures). But each passing hour brings new information and individuals into the public spotlight – and in the process sheds light on how such information is likely to be used and what the media and the public seem to find most noteworthy.

So what did Day 2 bring? . . .

Continue reading “Paradise Papers: Day 2”

Tax Leaks: The New Normal?

By: Diane Ring

Today, the Guardian is reporting that big-four accounting firm Deloitte suffered a hack back in March, 2017. The underlying attack may have originated in the fall of 2016 and may have allowed access to Deloitte systems for several months.

Deloitte itself is not unfamiliar with cybersecurity. As stated on its website, among the services that Deloitte offers clients is Cyber Risk. However, being a victim of a hack provides a new perspective. At this point, details are scarce on exactly which clients have been affected and what specific information may have been accessed, but it has been reported that “confidential emails and plans of some of its blue-chip clients” may have been compromised. This doesn’t sound good. But it is also no surprise.

Leaks and hacks can target a wide variety of data including business plans, mergers and acquisitions, scientific developments, business forecasts, individual identities, and government records. In recent years, tax-related information has proven especially attractive to leakers and hackers. As my co-author, Shu-Yi Oei and I explored in our recent article, Leak-Drive Law studying tax leaks that have occurred over the past 10 years, tax information can be valuable and their release by leakers can have powerful impacts. Moreover, as the tax community has embraced increased reporting and transparency to the government, the number of caches of well-organized data held by corporations, tax advisers and governments increases. Such caches may be magnets for those seeking to hack into it or leak it.

As we continue to move forward in this new world, what do we know? Continue reading “Tax Leaks: The New Normal?”

European Commission Prods OECD, EU, and Members States on Digital Taxation: An Analysis

By: Diane Ring

Complaints regarding the international tax system’s ability to handle the digital economy (think Google, Amazon, and a myriad of online service providers) are now ubiquitous. The heart of the problem is two-fold: (1) technology allows these corporations to effectively conduct business in a country without a physical presence there, and (2) much of these businesses’ value derives from intangibles whose value can be difficult to document.

The first reality limits a host country’s ability, under current law, to assert jurisdiction to tax the businesses. The second means that for core transactions by these businesses, such as licensing intangibles to related parties, it can be very difficult for the tax authorities to guarantee that the transactions are at arm’s length prices (and not shifting profit into low tax jurisdictions). The topic is pervasive enough to have merited its own Action Item in the ongoing OECD BEPS Project (Base Erosion and Profit Shifting).

However, a real, coordinated global response has been much harder to secure.  This week, the European Commission (EC) made its most recent foray into the debate with a Communication from the Commission to the European Parliament and the Council. But the EC was not just talking to European Union (EU) bodies; it was directly speaking to the OECD and EU member states. What exactly is the EC’s goal with this Communication?

Bottom line the EC seems to have several intersecting objectives: (1) clarify the problem, (2) identify and prod global actors, (3) delineate proper approaches, and (4) warn about the implications of nonaction. Continue reading “European Commission Prods OECD, EU, and Members States on Digital Taxation: An Analysis”

So about that Robot Tax…

Shu-Yi Oei

I came across a couple of news stories recently about how South Korea is introducing the world’s first robot tax. But based on the press reports, it sounds like the so-called robot tax is actually just a reduction of the tax deductions available to businesses that invest in productivity-boosting automation. The news sources themselves concede that this “robot tax” not exactly a tax on robots but rather a tax benefit reduction for automation investment.

Talk of a “robot tax” has landed at the forefront of tax news since Bill Gates mentioned it in a Quartz interview back in February of 2017. But of course, scholarship about robots (not to mention robots themselves) has been around for quite a bit longer. There’s even a “We-Robot” robotics law and policy conference that’s been going on since 2012, which I keep meaning to crash, but then there’s always something else going on.

A lot of what seems to be driving the tax conversation is the fear that robots are taking over jobs, though there’s some uncertainty about the extent to which robots are to blame.

Personally, I’ve been having a hard time squaring the newly ascendant tax conversation about the robot tax with the broader legal scholarship on robots. In some of the news and other commentary discussing Robotaxation, my reaction has been something to the effect of “I’m not sure that word means what you think it means.” Turns out, there is something of an existing conversation about what constitutes a robot in the first place—see, for example, Richards and Smart (2013) for a nice discussion of some of the definitional issues. See also this “What is a Robot?” piece in The Atlantic. In defining “robot,” it might matter how a robot moves in the physical world, what kind of quasi-independent agency it seems to exercise (autonomous vs. semi-autonomous), how humans interact with it, and even what sorts of emotions it triggers in us mere humans. We might understand some automated machines to be robots but others to just be automated equipment. And these distinctions make sense, from the viewpoint of areas like tort law, privacy law, the law of principals and agents, and the more general regulation of robots (and of artificial intelligence as a subcategory of robots).

But in some of the tax discussions about robots that I’ve seen on the interwebs, it’s quite clear that the authors don’t necessarily mean Robot when they say Robot. Continue reading “So about that Robot Tax…”

House Appropriations Bill

By: David Herzig

With all the diversions this week, it was easy to miss that the House Committee on Appropriations posted on June 28th the Appropriations Bill for FY 2018.  The bill seems to include a couple items that not many were expecting.  So, I thought I would highlight some of the key provisions.  Since it is Friday before a Holiday weekend, I’ll keep it short for now.  There are four main provisions I will address: (1) IRS Targeting/Johnson Amendment; (2) ACA Penalties; (3) Conservation Easements; and (4) 2704 (Estate/Gift Tax).

I. IRS Targeting/Death of Johnson Amendment

First, is a clear response to the “targeting” of groups from the Lois Lerner Administration. In three separate sections (107, 108 and 116), the bill attempts to regulate the IRS, not Continue reading “House Appropriations Bill”

We Should be Taking President Trump’s Tax Plan Seriously

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?

Screen Shot 2017-04-26 at 4.22.18 PM

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”

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!

The Games We Play

Shu-Yi Oei

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:

Screenshot 2017-04-10 23.18.32

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”

Teaching Depreciation with a #DBCFT Lurking

Shu-Yi Oei

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.