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?

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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!

Panama Papers: The One-Year Anniversary

By: Diane Ring

This month marks the one-year anniversary of the Panama Papers leak. In April 2016, the ICIJ announced the leak and a few weeks later (May 9, 2016) released a database that included a subset of the leaked data. The leak itself comprised over 11 million records spanning 40 years from the Panamanian law firm Mossack Fonseca. At its core, the leak revealed the true ownership of over 200,000 offshore entities, thereby raising a host of tax and political questions regarding many of the entities’ owners.

So what has happened over the past year as a result of the leak? Continue reading “Panama Papers: The One-Year Anniversary”

Cross-Training (or, Tulane Corporate and Securities Law Roundtable)

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

ACTC Letter Requesting a Variance for Tax Guidance

By: Leandra Lederman

Sam Brunson previously blogged about President Trump’s Executive Order of January 30, 2017, “Reducing Regulation and Controlling Regulatory Cost,” which requires an agency to identify two regulations to eliminate for every new regulation it issues. (Sam also has related posts here and here). As Sam stated, the Executive Order burdens taxpayers, who benefit from the public guidance Treasury regulations provide.

On March 23, the American College of Tax Counsel (ACTC) sent a letter to the Secretary of Treasury, Hon. Steven Mnuchin, and the Director of the Office of Management and Budget, Hon. Mick Mulvaney, “respectfully request[ing] that the Administration consider the unique role that the tax law plays in the lives of every American and provide the Treasury Department and the IRS with appropriate flexibility in issuing guidance that taxpayers and their advisors need in order to comply with the tax law.” The letter explains in part:

“By limiting the flexibility of Treasury and the IRS to issue such guidance, the Executive Order risks shifting the interpretive burden onto taxpayers, who must hire accountants, lawyers, and other advisors to guide them. . . . Moreover, by requiring Treasury and the IRS to identify two ‘deregulatory’ actions for each new guidance item, the Executive Order risks imposing additional burdens on taxpayers if it results in the elimination of existing rules that taxpayers and their advisors have come to rely on.”

I hope that Secretary Mnuchin and Director Mulvaney are receptive. As the ACTC’s letter states, even while simplification efforts are underway, “it is critical for taxpayers and their advisors to have the guidance needed to comply with the tax law as currently in effect.”

Update on the Future of Treasury Regulations

cfrBy Sam Brunson

I previously wrote about the fact that Treasury and the IRS were going to essentially stop issuing guidance in light of the Trump administration’s one-in-two-out rule for regulations.[fn1]

There seems to be some movement on this front. Yesterday, Commissioner Koskinen announced that the IRS was set to begin issuing “subregulatory” guidance again. He didn’t define what he meant by subregulatory, but it probably includes revenue procedures, notices, and revenue rulings, at least. (Interestingly enough, the Tax Notes reporting doesn’t mention revenue rulings,[fn2] while the BNA reporting does. I don’t know if that difference is accidental, or if the two organizations are interpreting differently what Commissioner Koskinen means by subregulatory.) Continue reading “Update on the Future of Treasury Regulations”

The Insurance Market Regulations in the Republicans’ Health Care Bill: Crippling Obamacare, or Passing a Hot Potato to State Governments?

By David Gamage

On Monday, the House Republicans finally revealed their draft bill to “repeal and replace” the Affordable Care Act (#Obamacare or #ACA). The bill is titled the American Health Care Act, and commentators have been referring to it as either the #AHCA or #Trumpcare.

To assess the bill, it is helpful to think of it as consisting of four primary buckets:

  1. ending many of Obamacare’s tax provisions (read: large tax cuts for the very wealthy);
  2. phased-in cuts to Medicaid funding and scheduled devolution of Medicaid to the states (read: eroding the health safety-net program for the poor);
  3. transforming Obamacare’s other major health subsidies from being based mostly on income and health costs to being based more on age (read: the implications of this are actually less straightforward than what much of the commentary suggests, but that is a topic for another day); and
  4. other changes to Obamacare’s insurance market regulations (the subject of today’s blog post).

In this blog post, I will focus on the fourth bucket—the changes to Obamacare’s insurance market reforms other than the changes to the subsidies. Time permitting, I hope to write future blog posts on some of the other buckets.

What is most striking about the AHCA’s insurance market changes is how they keep the vast majority of Obamacare’s reforms in place. Right-wing groups have thus taken to calling the AHCA “#ObamacareLite”. Yet I consider this a misnomer. A more accurate label would be #ObamacareCrippled.

The AHCA’s changes do not really water down Obamacare, as the intended slur of “ObamacareLite” implies. Rather, the AHCA’s changes would likely cause Obamacare‘s framework for regulating the individual market to fall apart. If the AHCA bill were to be enacted in its current form, the result would likely be adverse-selection death spirals. The only real hope for saving the individual market would be for state governments to step up with new state-level regulations for supporting insurance markets within each state.

Continue reading “The Insurance Market Regulations in the Republicans’ Health Care Bill: Crippling Obamacare, or Passing a Hot Potato to State Governments?”

Past Moratoria on Tax Guidance and Regulations(?)

By: Sam Brunson

cch_standard_federal_tax_printOn my previous post talking about the the IRS’s announcement that it was putting a moratorium on issuing new regulations and formal guidance, a commenter asked if it was such an odd thing for a new Administration to temporarily pause guidance. After all, who wants to issue guidance before the new Administration’s people are in place and agenda is set, lest the new Administration change its priorities and positions in the coming months?

I didn’t remember any such (formal, at least) pause in 2009, but, when I got home, I decided to look back a few years. I looked at new regulations and revenue rulings in the first month of the Obama, George W. Bush, Clinton, and Reagan presidencies (I didn’t bother with George H.W. Bush, because that was a Republican to Republican switch). Also, because we don’t know how long the current limitations on regulations and other guidance will last, I also expanded my search of revenue rulings for the first three months of the new administrations.[fn1] Continue reading “Past Moratoria on Tax Guidance and Regulations(?)”

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”

Privacy Is Dead: Crowdsourcing Tax Enforcement

Sam Brunson
Professor, Loyola University Chicago School of Law

Periodically, the IRS estimates the tax gap (that is, the difference between taxes due and taxes owed). For the years 2008 through 2010, the IRS estimates the annual tax gap was about $458 billion. After including late payments and amounts collected through IRS enforcement efforts, the annual tax gap diminished by $52 billion a year, leaving a $406 billion tax gap in each of those three years.

The $406 billion tax gap is equivalent to just over 16 percent of taxes due. And the IRS is unlikely to significantly close this gap going forward. While the has proven remarkably efficient at collecting revenue—in fiscal year 2015, it collected $3.3 trillion on a budget of just under $11 billion—Congress has been cutting the IRS budget for the last decade or more, while, at the same time, assigning the IRS more responsibilities. In spite of its efficiency, the IRS must do more with less, and its ability to find taxpayers who do not pay their taxes is thus bound to suffer.

These constraints are reflected in the data about IRS enforcement activities: in 2015, the IRS audited about 0.8 percent of individual tax returns and 1.3 percent of corporate income tax returns. Not only does the IRS audit very few returns, but the number has been falling: in 2010, the IRS audited about 1.1 percent of all individual returns.

There is no easy solution to the tax gap, or to the audit rate. Increasing IRS funding, or decreasing its non-revenue-raising responsibilities, would perhaps be the most effective fix, but that currently appears unrealistic. In a 2015 Pew survey, 48 percent of Americans had an unfavorable view of the IRS, up from 40 percent five years earlier. And Republicans—who will control both the Executive and the Legislative branches of the federal government—score significant political points campaigning against the IRS. So properly funding the IRS appears unlikely in the near future.

An alternative solution, then, would be to reduce the costs to the IRS of enforcement. One way to reduce those costs? Crowdsource enforcement.

A Brief History of Tax Return Disclosure

Crowdsourcing tax enforcement is an old, albeit out-of-favor, idea. In fact, it was not until 1976 that Congress definitively ended more than a century’s experimentation with deputizing the public to help enforce the tax law. Beginning in 1861, the Civil War income tax law provided for public access to tax returns. To ensure that public access (and titillate their readers), newspapers published the returns of prominent citizens. This public disclosure ended when the income tax was allowed to expire, but Congress experimented anew with it in each successive iteration of the federal income tax.

Congress had one principal goal in publicizing tax returns: ensuring that taxpayers paid their taxes. Essentially, public access to taxpayers’ returns allowed the government to crowdsource enforcement—people would notice, for example, that their neighbor had paid suspiciously little in taxes. Knowing that the Panopticon was watching their returns, taxpayers would have every incentive to pay their full tax liabilities.

Not everybody appreciated this mandatory disclosure of tax returns, of course. From the start, public disclosure faced significant opposition. Every time Congress reintroduced public disclosure of tax returns, opponents of disclosure argued that such forced disclosure was both un-American and intrusive. According to critics, the publicity not only violated taxpayers’ privacy, but it might actually endanger taxpayers, exposing their wealth and addresses to criminals and kidnappers. Even without danger, the benefits, according to critics, were limited to individuals’ indulging their idle curiosity.

Moving to Privacy

By 1976, the public disclosure of tax returns had been severely curtailed. In spite of being “public records,” they were no longer generally available to newspapers or the public at large; rather, they were open to inspection by the general public under regulations approved by the president or pursuant to presidential order.

Federal agencies had more access to tax returns than the general public, but even federal agencies could only see them on a case-by-case basis, after providing a written request. In the 1970s, though, in the wake of Watergate and fears about the “proliferation of computerized data banks,” the government began to strengthen citizens’ privacy rights. The 1976 Tax Reform Act cemented those privacy rights, broadly forbidding government employees from disclosing taxpayers’ returns or return information.

Over the next two decades, privacy became such a central principle of American society that, in 1993, Professor Richard Pomp wrote that it was “unthinkable for proposals” for public disclosure of tax returns to be “taken seriously.” Less than a decade later, though, in the wake of Enron’s collapse, legislators, academics, policymakers, and the media were seriously discussing the implications of making corporate tax returns public.

A Post-Privacy World?

A decade and a half after Enron’s collapse, the table appears perfectly set for returning to public disclosure of tax returns. Earlier privacy concerns seem irrelevant, if not quaint, in today’s world. For many individuals, the public already has access to information about their salaries. At least half of the states maintain public databases of state employee salaries.[fn1] Securities and Exchange Commission rules require publicly-traded corporations to disclose the compensation of its five most highly-paid employees. And Forbes lists the income of the most highly-paid musicians, actors, and athletes, as well as its estimates of the net worth of the world’s wealthiest individuals.

Beyond this broad array of information already available, today’s privacy situation is almost the polar opposite of the post-Watergate world. While exponentially more personal information is stored on computer servers today than 40 years ago, Americans have largely put that information online voluntarily. Technology entrepreneurs argue that social norms have moved away from privacy. And while the entrepreneurs may have financial motivations for arguing that the norms have changed, they are not alone in that view. Many experts believe that within another decade, much of what we consider private today will no longer be considered private.

It may not even require movement with social norms to arrive at a post-privacy world with respect to tax returns. The IRS, tax, and accounting firms have, until now, done an admirable job keeping returns private. In contravention of decades of precedent, president-elect Donald Trump refused to release his tax returns. In spite of the pressure, only three pages of (state) tax returns were ever leaked. But the fact that he faced no leaked returns does not mean that they will not, in the future, be leaked: the extensive Panama Papers leaks suggest that no data—even private law firm data—is necessarily safe from public scrutiny. In fact, hackers may have accessed information on more than 700,000 taxpayers in an IRS data breach.

Of course, the fact that taxpayer information could be compromised, and that notions of privacy may change significantly in the future, do not present an affirmative case for requiring all taxpayers to disclose their tax returns.

Consequences of Crowdsourcing Enforcement

Requiring the public disclosure of tax returns has at least two beneficial results, from a tax compliance perspective. At the ex ante level, it forces taxpayers to think about how aggressive they want to be. When tax returns are private, only the taxpayer, her advisors, and maybe the IRS (if hers is one of the 0.8 percent of returns it audits) will know how she structured her tax life. She can thus maintain a public image as a tax-compliant citizen, even while pushing the boundaries. If, however, she knows that her tax returns will be available to the public, she is forced to internalize the non-monetary costs of her tax planning. Perhaps saving money by paying less in taxes is more important to her than being seen by her peers as complying with the tax law, in which case she may continue to take aggressive positions. To the extent there is a social norm of tax compliance, however, knowing that her peers will have access to her tax returns may cause a taxpayer to be more conservative.

At the ex post level, requiring taxpayers to publicly disclose their tax returns reduces the IRS’s search costs as it enforces the tax law. It would, of course, continue to use its matching system and other techniques for determining which returns to audit, but it would also have hundreds or thousands of additional eyes scrutinizing tax returns. Friends, neighbors, competitors, and former spouses may all have some interest in seeing tax returns, and potentially in reporting bad behavior.

This ex post crowdsourced auditing does have potential problems, of course. It would increase the noise, as presumably some percentage of tips would be false positives. And if it turns out that significant numbers of taxpayers are taking aggressive tax positions, it may encourage other similarly-situated taxpayers to take similarly aggressive positions.  In both cases, though, the sheer quantity of data may correct for the problem. The IRS may not want to act on every tip, but if it sees a pattern of behavior from a number of taxpayers, it may decide to look closely at returns that engage in that behavior. And if the IRS were to strategically target aggressive positions taken by a number of taxpayers, that could discourage other taxpayers from following suit.

Two Final Thoughts

Administratively, requiring disclosure would be tremendously easy. In 2015, almost 88 percent of individual returns were filed electronically. With electronically-filed returns, the IRS could automatically redact certain sensitive information (for example, social security numbers and, perhaps, names of dependents) and instantly make the returns available online. The 12 percent of returns filed on paper would take more work to redact, but the IRS could require taxpayers who filed on paper to file an unredacted and a redacted version of their returns.

But culturally, it would be hard. Although we may be approaching a post-privacy world, we are not there yet. Although people freely post all kinds of personal information to the internet, few people voluntarily publicize their tax returns, and mandatory disclosure could still face significant pushback.

As an intermediate step toward full publicity, then, perhaps the tax law should make such disclosure option, but offer a carrot to those who opt in. For example, such a program could provide that those who disclose their tax returns will be protected from penalties for a certain number of years.


[fn] I didn’t do an exhaustive search, but even a quick Google search found me databases for these states: Arkansas; California; Connecticut; Florida; Illinois; Indiana; Iowa; Kentucky; Maryland; Massachusetts; Minnesota; Missouri; Montana; New York; North Carolina; Ohio; Oklahoma; Pennsylvania; South Carolina; Tennessee; Texas; Utah; Virginia; Washington; Wisconsin.