The Art of the (Budget) Deal

Who Holds the Trump Card on Reconciliation?

Republicans on Capitol Hill are reportedly planning to use the filibuster-proof budget reconciliation process to repeal the Affordable Care Act and overhaul the tax code. Against that background, Sam Wice says that “the most powerful person in America” in 2017 will be Senate Parliamentarian Elizabeth MacDonough, the nonpartisan official who will “determine” how much of their agenda Republicans can pass through reconciliation. This, of course, is an exaggeration: like it or not, the most powerful person in America in 2017 will be Donald J. Trump, who will wield all the power of the imperial presidency. But Wice’s post helpfully directs our attention to the budget reconciliation process, the rules of which quite likely will determine whether the Republican leadership on Capitol Hill can repeal the ACA and reform the tax laws.

Yet while one should not underestimate the importance of reconciliation, one should also not overestimate the power of the Parliamentarian in the reconciliation process. As a formal matter, the Parliamentarian’s role is advisory; and as a practical matter, the Parliamentarian has little say over significant aspects of reconciliation. Other actors—most notably, Senate Budget Committee Chairman Mike Enzi (R-Wy.)—wield at least as much influence as the Parliamentarian. Most importantly, Enzi—not MacDonough—will determine whether the provisions in any reconciliation bill violate various rules against deficit-increasing legislation being passed via reconciliation. And unlike the Parliamentarian, the Budget Committee Chairman is very hard to fire.

Reconciliation measures can begin in either or both chambers. However, since the ultimate vote on the budget measure occurs in the Senate, we’ll focus on the Senate side of the reconciliation process for purposes of this discussion. On the House side, the Rules Committee Chair and the Budget Committee Chair will wield outsized influence as well. We expect Pete Sessions (R-Tex.) to stay on as House Rules Committee Chair; as for the House Budget Committee Chair, the race is on for a replacement to Tom Price, the Georgia Republican recently tapped as Trump’s Health and Human Services Secretary.

To understand why the Budget Committee Chair is as powerful as he is, a bit of background on reconciliation may be helpful. Continue reading “The Art of the (Budget) Deal” →

Cooking The Books Podcast on Trump’s Taxes

By: David J. Herzig

Today Pulitzer Prize winning journalist, David Cay Johnston, Phil Hackney, and I got together for a 30 minute podcast discussion regarding the recent NY Times follow-up article about Mr. Trump’s $916 million tax loss (“NOL”).

Here is link if you missed hyper-link above: http://share.sparemin.com/recording-5131

The topics ranged from the current tax reporting regarding Mr. Trump’s 1990s tax returns to the Trump Foundation to potential criminal sanctions against Mr. Trump. It was fantastic to be a part of and I hope everyone listens.

Continue reading “Cooking The Books Podcast on Trump’s Taxes” →

Congratulations to the Newly Elected Members of the American Law Institute!

By: Francine J. Lipman

The American Law Institute (ALI) has just announced its newly elected members. The members who join ALI from across the country will bring their diverse backgrounds and areas of legal expertise to ALI’s work. Fifteen of the 45 new members are professors, sixteen are partners (or the equivalent) in law firms, seven are judges, six are in private industry, and one is a government legal advisor.

“One of the most exciting aspects of being President of the ALI is meeting some of today’s most important and inspiring legal minds as they are elected into The American Law Institute. I look forward to having the opportunity to work alongside these new members in continuing the ALI’s efforts in clarifying the law,” said ALI President Roberta Cooper Ramo. Continue reading “Congratulations to the Newly Elected Members of the American Law Institute!” →

Make Way for Ducklings?

Shu-Yi Oei

Professor Charlotte Crane (Northwestern) presented Integrating a Fragmented Corporate Income Tax at BC Law School’s Tax Policy Workshop yesterday. Briefly, the paper is focused on recent proposals to integrate the corporate income tax, in particular, the yet-to-be-released Orrin Hatch proposal from the Senate Finance Committee. I’m no corporate tax expert, but the workshop afforded me the excuse to wade like a duckling through the recent literature…a nice break from other projects.

The corporate integration debate refers to the question of whether to eliminate the corporate double tax (i.e., the tax on both the corporation and its shareholders on the same underlying income) and replace it with a single layer of tax. Many have argued that this would reduce tax burdens, minimize economic distortions, and bring us closer to tax neutrality in investment decisions. Others have argued that corporate integration achieved through shifting the corporate tax to the shareholder level will enhance progressivity and fairness.

The integration debate has raged for decades, with important Treasury and ALI studies in 1992 and 1993, and a surge of recent academic and policy interest. There are various design possibilities, including: integration via a shareholder credit (a.k.a. imputation), integration via a dividend deduction paired with a shareholder withholding tax, integration via a shareholder dividend exclusion, flow-through taxation, and others. A couple of recent proposals: Toder and Viard have suggested eliminating the corporate tax and replacing it with taxation of shareholder dividends and gains at ordinary rates, with gains taxed on a mark-to-market (accrual) basis. And Gruber and Altshuler even more recently proposed pairing a lowered (15%) corporate tax rate with ordinary income taxation of shareholder dividends and capital gains (including an interest charge on deferred shareholder liabilities designed to minimize behavioral distortions).

Continue reading “Make Way for Ducklings?” →

I’ve Got ITINs on My Mind

By: Francine J. Lipman

Individual Taxpayer Identification Number (ITIN) Holders Pay Over $45 Billion Annually in Federal, State, and Local Taxes

Among the many amazing opportunities I have had as a law professor at the University of Nevada, Las Vegas is continuing my work with immigrants on their tax issues. As I have written about at length unauthorized immigrants pay many tens of billions of dollars a year in taxes including federal (about 4.4 million ITIN tax returns were filed in 2015 paying over $23 billion including $18.1 in federal income taxes and $5.5 in self-employment taxes), state, and local income, property, sales, excise, etc. ($12 billion annually), and payroll taxes (about $12 billion a year in net Social Security and Medicare taxes for which they currently receive no current or future benefit).

ITINs GENERALLY

Nevertheless, Congress continues to challenge this population with respect to their tax compliance. If you do not know what an ITIN is then this issue likely does not directly affect you … however if you want a quick education the National Immigration Law Center (NILC) has a great primer available in English and Spanish here. Since 1996, IRS has issued about 21 million ITINs although only about 5 million are currently being used. Congress had previously enacted legislation causing any ITIN not used for five years to expire. However, that legislation was not given a chance to be enforced, because Congress has been busy enacting more recent ITIN expiration legislation that supersedes the five year law.

THE CURRENT ITIN on my mind ISSUE

ITIN EXPIRATIONS

In the recently enacted PATH Act of 2015 (Protecting Americans from Tax Hikes), among other matters, all ITINs issued before 2013 will be expiring and have to be renewed. An ITIN issued after December 31, 2012, will remain valid unless the person to whom it was issued does not file a tax return—or is not included as a dependent on the return of another taxpayer—for three consecutive years.

Congress has phased-in the expiration of ITINS as follows:

IF THE ITIN WAS ISSUED THE ITIN EXPIRES ON

before January 1, 2008 January 1, 2017
in 2008 January 1, 2018
in 2009 or 2010 January 1, 2019
in 2011 or 2012 January 1, 2020

In an effort to streamline the process, the IRS is identifying the first wave of ITINs expiring on January 1, 2017 as ITINs with the middle digits of 78 or 79. The IRS will identify the respective middle digits for the second, third, and fourth waves of expirations in time.

HOW TO RENEW BEGINNING October 1, 2016

ITINs scheduled to expire as of January 1, 2017 (middle digits 78 or 79 or any ITIN not used on a tax return for the last three consecutive years (e.g., 2013, 2014, and 2015)), can be renewed using the newly revised for this purpose Form W7 (available here) also known as an Application for IRS Individual Taxpayer Identification Number. No tax return is required for a renewal application.

The application including all required original documents (e.g., passport) must be mailed to Internal Revenue Service, ITIN Operation, P.O. Box 149342, Austin, TX 78714-9342. The anticipated time that the IRS will take to renew or issue an ITIN outside of peak processing times (between January and April) has historically been about six weeks. However, in a recent press conference the IRS said that they would be sending 400,000 letters to ITIN holders with expiring ITNs so there could be a much longer waiting period. The National Taxpayer Advocate has written about the ITIN application backlog and bottleneck in her 2015 Report to Congress as Most Serious Problem Number 18.

Any original documents or certified copies submitted in support of an ITIN application are supposed to be returned within 65 days. Taxpayers who do not receive their original and certified documents within 65 days of mailing them to the IRS may call 1-800-908-9982 to check on their documents.

CERTIFIED ACCEPTANCE AGENTS Not surprisingly, many immigrants will not want to send original documents to the IRS. In lieu of sending original documentation, taxpayers may be eligible to use an IRS authorized Certified Acceptance Agent (CAA) or make an appointment at a designated IRS Taxpayer Assistance Center location. CAAs often charge a fee for services rendered although some of the large chains of retail tax preparation companies are advertising free ITIN renewal services. I would advise taxpayers to proceed with caution as there may be ancillary costs, charges, or fees. The Consumer Federation of America, among others including myself, have written about the high cost of tax assistance services for low-income taxpayers and the potential for consumer abuse including price gouging.

FAMILY ITIN APPLICATIONS The IRS will accept a Form W-7 renewal application from each member of a family if at least one of the family members listed on a tax return has an ITIN with the middle digits of 78 or 79. If one family member has middle digits 78 or 79, all family members who have an ITIN may submit a Form W-7 renewal application at the same time.

FINANCIAL CONSEQUENCES IF ITINs Are NOT Renewed

Until ITINs are renewed, returns with expired ITINs will be processed and treated as timely filed, but the returns will be processed without any exemptions and/or credits claimed and no refund will be paid. The taxpayer will receive a notice from the IRS explaining the delay in any refund and that ITINs must be renewed. Once ITINs are renewed, any exemptions and credits will be processed and any allowed refunds will be paid. If ITINs are not renewed, taxpayers may be subject to interest and penalties for any tax owed as a result of disallowed exemptions and credits.

HELP IS AVAILABLE

The more than 130 Low-Income Taxpayer Clinics across the country should be able to answer questions and point you in the right direction to get assistance. To find the contact information for a LITC in your area look at this user-friendly map and list in English and Spanish here.

Moreover, the NILC and other immigrant advocate groups and pro bono lawyers like myself are always here to lend a hand. On November 16th, UNLV will be hosting a Continuing Legal Education program titled “Everything You Need to Know About the NEW Taxpayer Identification Number (ITIN) Renewal Process” from 12:30 – 2:30 p.m. at William S. Boyd School of Law, Moot Court Room. Join us.

Rio 2016!

rio The Rio Olympics start this weekend.[fn1] And, in spite of the catastrophe that the Rio Olympics may potentially be, we’ll be watching (in the same way John Oliver excoriated FIFA for 12 minutes before announcing that he was “still so excited” for the World Cup).

U.S. Olympians are likely to win a collective 100 or so medals over the next couple weeks. And, in addition to medals, winners will receive cash payments from the U.S. Olympic Committee—it will pay $25,000 for a gold, $15,000 for a silver, and $10,000 for a bronze. Continue reading “Rio 2016!” →

Emerging Trend for Uber in Europe?

By: Diane Ring

Uber, one of the most prominent faces of the sharing economy, has not always been welcome in the EU. Similarly, Airbnb has experienced legal, regulatory, and public policy resistance across European countries. However, two recent developments in the EU suggest that, on balance, Europe might be staking out a regulatory path for the sharing economy that is intended to demonstrate the region’s support for the new sector. . . . Continue reading “Emerging Trend for Uber in Europe?” →

It’s Complicated.

By: Shu-Yi Oei

I’ve been thinking a lot about movies lately, partly because this pesky sign appeared outside my house a couple of days ago, and partly because of the Louisiana film tax credit, which has been all over the local news.

film sign 2

A couple of days ago, an Associated Press article reported that Louisiana’s motion picture industry was down by 90% this year as filmmakers moved production to states with more generous tax incentives. (I guess that puts the filming outside my house in the 10%?). It was also reported that Governor John Bel Edwards and the Louisiana Economic Development agency are going to commence an examination of the film tax credit and its economic impact in Louisiana. As the news reports indicate, the decline in movie production activity is undoubtedly due to the fact that, facing a state budget deficit, legislators placed caps and limitations on the credit in legislation passed last year. The most material change was an aggregate $180 million cap on the credit for tax years 2015-18, which will then sunset. RS: 47:6007(C)(1)(d)(ii). As a result, movie production has reportedly moved to states with more generous film tax incentives.

The Louisiana film tax credit is a complex beast, and I can’t cover all its intricacies here. But some broad policy points are worth mentioning. Continue reading “It’s Complicated.” →

The EU, Robots, and Star Trek

By Diane Ring

Even in the midst of great turmoil surrounding the Brexit vote, I was intrigued by recent reports that the EU is contemplating taxing robots on their “labor.” My initial reaction was that this focus on “sophisticated autonomous” robotic forms was Star Trek meets employment taxes, reminiscent of an episode in which the ship’s android officer, Data, asserts and argues for status as a sentient being rather than a piece of shipboard machinery to be disposed of at will. See generally Episode 9, Season 2 (“The Measure of a Man”) of Star Trek: The Next Generation.

While my sci-fi vision of EU legislation was enticing, it turns out that the motivations for this proposal were grounded in much more immediate concerns . . . Continue reading “The EU, Robots, and Star Trek” →

Tax Times @ ABA Section of Taxation

By Francine J. Lipman

Supervising Editor Professor of Law Linda Beale and her team of outstanding ABA – Tax Section editors, Anne Dunn and Isel Pizarro, and staff have put together an exceptional June 2016 issue of the digital Tax Times. Features include . . . Continue reading “Tax Times @ ABA Section of Taxation” →

Consumer Financial Regulation Meets Income Share Agreements

By: Shu-Yi Oei

On Wednesday, I spoke at the National Association of Consumer Credit Administrators (NACCA) 81^st 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” →

Minnesota Dogs Breathe (Woof) a Sigh of Relief: Pet Trusts Now Legal

By Diane Ring

Perhaps you heard a chorus of joyous barking across the state of Minnesota recently — now you know why. Until just over two weeks ago, every state in the U.S., plus Washington, D.C., recognized statutory pet trusts, except Minnesota. But on May 22, 2016, the Minnesota Governor signed legislation approving pet trusts. The legislation, which had been sponsored in the House by Rep. Dennis Smith and in the Senate by Sen. Scott Dibble, allows the creation of a legally enforceable trust that provides for the care of an animal that was alive during the grantor’s lifetime. The terms of the trust can be enforced by a person appointed in the trust, or if no one is appointed, the court may appoint someone. Moreover, anyone having an “interest in the welfare of the animal” may petition the court to appoint someone to enforce the trust or remove the person so designated in the trust document. The trust would terminate on the death of the last surviving animal (or 90 years if shorter). Any remaining proceeds would be distributed pursuant to the trust’s terms, or if the trust fails to specify, then to the “grantor’s heirs-at-law determined as if the grantor died intestate domiciled in [Minnesota] at the time of distribution.”

This all seems pretty straightforward, so why was Minnesota the last state? Continue reading “Minnesota Dogs Breathe (Woof) a Sigh of Relief: Pet Trusts Now Legal” →

Obamacare, ACOs, and Tax-Exemption

By: Philip Hackney door-349807_1280

Sometimes, well probably every time, when I teach about hospitals qualifying as tax-exempt charitable organizations I tell the joke from the movie Airplane that goes like this:

Rumack: You’d better tell the Captain we’ve got to land as soon as we can. This woman has to be gotten to a hospital.

Elaine Dickinson: A hospital? What is it?

Rumack: It’s a big building with patients, but that’s not important right now.

The point of this joke is an important one to me. It helps to illuminate the fact that the “promotion of health” as a charitable purpose is focused heavily on a space and an activity combined. Generally for the promotion of health to qualify as a charitable purpose there must be a physical building where doctors and nurses relieve the suffering of the afflicted. Not just any promotion of health suffices. Running a cheap pharmacy just does not cut it. Providing sperm to the women of your choice for free, even though it may effect health, simply does not cut it either (don’t ask, just read the opinion). What about health insurance? Generally, because of section 501(m) of the Code, health insurance does not qualify. However, health maintenance organizations (HMOs) that sell health services in exchange for a monthly fee that also own a building where they treat patients can qualify.

That brings us to a recent IRS denial of the application for charitable status of an organization operated as an “accountable care organization” (“ACO”), a creature of Obamacare. Continue reading “Obamacare, ACOs, and Tax-Exemption” →

Presidential Tax Transparency Act

By: David J. Herzig

I was given a heads up yesterday about new legislation requiring disclosure of a presidential candidate’s tax returns (thanks Janet Novack). In the wake of our coverage of the tax issues related to the presidential race, it is worth mentioning the legislation proposed by Senate Finance Committee Ranking Member Ron Wyden, D-Ore.

According to the press release: “‘Since the days of Watergate, the American people have had an expectation that nominees to be the leader of the free world not hide their finances and personal tax returns,’ said Wyden.

“The Presidential Tax Transparency Act says that within 15 days of becoming the nominee at the party convention, the candidate must release their most recent 3 years of tax returns to the Federal Election Commission (FEC). Should the candidate refuse to comply, the Treasury Secretary will provide the tax returns directly to the FEC for public release.”

A summary of the bill is here and the full text is here.

As an initial matter, I am in favor of codifying a rule requiring the disclosure of tax returns if you a candidate for president on any State’s ballot. As I read the legislation, there seem to be major problems with the language of the statute. This makes me think that the legislation is more of a publicity stunt then a force for meaningful change.

Here are some of the problems I see with the legislation: Continue reading “Presidential Tax Transparency Act” →

Will New Data on the Volume of Sharing Economy Workers Prompt Tax Reform?

By: Diane Ring

Sharing economy and other platform workers are frequently classified as independent contractors and bear many of their own costs. Thus, these workers whom we don’t think of as “small businesses”—and don’t really think of themselves as small businesses—are thrust into the exciting world of quarterly reporting and calculation of proper deductions. Exciting if you are a tax lawyer, but less so if you are making limited income and are facing daunting tax compliance requirements. Despite these compliance challenges, there has not been much movement in responding to the tax challenges faced by sharing economy workers. These observations about the sharing economy sector have been around for a while; they were the focus of two forthcoming articles by my co-author, Shu-Yi Oei, and me (Can Sharing Be Taxed? and The Tax Lives of Uber Drivers: Evidence from Internet Discussion Forums).

Yesterday, a new report coming out of American University echoed our observations and findings. Caroline Bruckner of the Kogod Tax Policy Center presented testimony (and a supporting report) to Congress regarding the size and scope of worker participation in the sharing economy. Her goal was not to provide a definitive calculation nationwide of sharing and platform workers, but to offer a solid sense of the scale of participation in the sector (more than 2.5 million individuals) and note important growth trends. Based on the percentage of the American workforce active in the sharing/platform sector, she urged more government attention to reform that would address the tax compliance and administration challenges in this sector.

Will Congress and Treasury/IRS respond? Continue reading “Will New Data on the Volume of Sharing Economy Workers Prompt Tax Reform?” →