Chuck Berry, Cash, and Taxes

Copyright Missouri History Museum, Some Rights Reserved

By Sam Brunson

In the aftermath of Chuck Berry’s death on March 18, I learned that I’m way more familiar with his music than I had realized. I’ll confess that I never spent a lot of time thinking about Chuck Berry, but his songs (it turns out) were an accidental soundtrack to my growing up. My dad had two or three oldies stations programmed into the radio, and Berry’s music was ubiquitous on their playlists. And many songs I’m partial to have turned out to be his. (I’m thinking particularly of Nina Simone’s cover of “Brown-Eyed Handsome Man.”)

Still, I’m not a big enough fan to try to write about Berry on a tax blog. Or, rather, I wasn’t until last night, at the gym. As I listened to Sound Opinions, I learned that, like so many musicians, Berry had a run-in with the IRS. Continue reading “Chuck Berry, Cash, and Taxes”

Did Rachel Maddow Break the Law? #TrumpTaxReturns

By Sam Brunson

Last night, Rachel Maddow dropped a bombshell: reporter David Cay Johnston had a leaked copy of Donald Trump’s 2005 tax return, and he shared it on her show.

Okay, maybe it wasn’t entirely a bombshell; in our leakhappy environment, it was almost inevitable that we’d eventually see some of Trump’s returns. And this barely counts as a return: it’s just his Form 1040 from 2005 (that is, the first two pages of a return). When I grade voluntary presidential candidate tax disclosures, one year’s Form 1040 realistically gets you a D+; the 1040 says how much you ultimately paid in taxes, but very little more than that. (For example, you can see that Trump had itemized deductions of just over $17 million, but you can’t tell what itemized deductions he took. I mean, is it mortgage interest? state and local taxes? charitable contributions? some combination? Without the full return, we have no way of knowing.) Continue reading “Did Rachel Maddow Break the Law? #TrumpTaxReturns”

Death, Taxes, and a Beach Read

51bm1qlqlzl-_sy344_bo1204203200_By: Leandra Lederman

Back in December 2011, I received a targeted mailing. It was the postcard below, which I received at the office. Tfullsizerender-1hus far, I haven’t found a Maurer colleague or tax friend who received this mailing. Some marketer apparently did his or her homework and identified me as someone with an interest in both tax and chick lit! I don’t get to read novels very often anymore, but this looked like exactly the kind of book I would enjoy. I even acted on the sticker on the reverse of the postcard, which said “A book makes a great holiday gift!” “Death, Taxes, and a French Manicure” was a great start to the Christmas list request I had recently received.

I received the book for Christmas and got hooked on the series. I’ve gotten through Book 10 so far. They’re a lot of fun. It never occurred to me to blog about them, though, until I read the first page of “Death, Taxes, and Cheap Sunglasses” while on a plane, and saw a link with tax issues I frequently write about. The opening paragraph reads:

“I slid my gun into my purse, grabbed my briefcase, and headed out to my car. Yep, tax season was in full swing once again, honest people scrambling to round up their receipts, hoping for a refund or at least to break even. As a taxpayer myself, I felt for them. But as far as tax cheats were concerned, I had no sympathy. The most recent annual report indicated that American individuals and corporations had underpaid their taxes by $450 billion. Not exactly chump change. That’s where I came in.”

I had just presented my latest tax compliance article, “Does Enforcement Crowd Out Voluntary Tax Compliance?” and here were tax gap figures showing up in a novel! “Death, Taxes, and Cheap Sunglasses” was published in 2015, when the annual federal tax gap was in fact estimated at $450 billion. (The updated tax gap figures, released in April 2016, and which I blogged about previously, are available here.)  Continue reading “Death, Taxes, and a Beach Read”

When Leaks Drive Tax Law (a.k.a. our new paper!)

Shu-Yi Oei

Diane Ring and I just posted our new article, Leak-Driven Law, on SSRN. I had previously blogged about this paper as part of Leandra Lederman’s 2017 Mini-Symposium on Tax Enforcement and Administration, The abstract is here:

Over the past decade, a number of well-publicized data leaks have revealed the secret offshore holdings of high-net-worth individuals and multinational taxpayers, leading to a sea change in cross-border tax enforcement. Spurred by leaked data, tax authorities have prosecuted offshore tax cheats, attempted to recoup lost revenues, enacted new laws, and signed international agreements that promote “sunshine” and exchange of financial information between countries.

The conventional wisdom is that data leaks enable tax authorities to detect and punish offshore tax evasion more effectively, and that leaks are therefore socially beneficial from an economic welfare perspective. This Article argues, however, that the conventional wisdom is too simplistic. In certain circumstances, leak-driven lawmaking may in fact produce negative social welfare outcomes. Agenda-setting behaviors of leakers and media organizations, inefficiencies in data transmission, suboptimally designed legislation, and unanticipated behavioral responses by enforcement-elastic taxpayers are all factors that may reduce social welfare in the aftermath of a tax leak.

This Article examines the potential welfare outcomes of leak-driven lawmaking and identifies predictable drivers that may affect those outcomes. It provides suggestions and cautions for making tax law, after a leak, in order to best tap into the benefits of leaks while managing their pitfalls.

In this paper, we wanted to explore how leaks of taxpayer data in the offshore context have shaped international tax law and policy, both in the US and other countries. We especially were interested in the possibility that—while leaks might appear useful on the surface from a tax enforcement and informational standpoint—there are unexplored pitfalls and downsides to relying on leaks to direct lawmaking and policy priorities.

In the non-tax world, of course, leaks have suddenly become very salient, in terms of both their usefulness and their dangers. But (non-tax lurkers take note!) tax law has been dealing with leaks of taxpayer information and what they mean for tax enforcement for at least the past ten years. Of course, tax leaks have some distinctive characteristics that make them different from other types of leaks. For example, the tax leaks that are the subject of this paper are usually (though not invariably) leaks of private taxpayer data, rather than leaks about governments from government sources.

We do think that the framework we introduce in our paper for analyzing the upsides and downsides of leak-driven lawmaking can be applied to explore how non-tax leaks and reactions to them may be socially beneficial but could also lead to less than ideal results. In both tax and in other fields, the meta-issue is not just how governments and private actors can use leaked information to sanction bad behaviors, make decisions, or design laws. Rather, the issue is how the actions and responses of leakers, governments, journalists, international organizations and the public work together to create and promote certain outcomes. Once we understand the underlying dynamics, then we can consider how the outcomes they create should be evaluated, supported, or resisted.

If you’re working on leak-related scholarship in either tax or other fields, we’d love to chat.

Leak-Driven Lawmaking

Shu-Yi Oei
Hoffman F. Fuller Professor of Law, Tulane Law School

Over the past decade, a steady drip of tax leaks has begun to exert an extraordinary influence on how international tax laws and policies are made. The Panama Papers and Bahamas leaks are the most recent examples, but they are only the tip of the leaky iceberg. Other leaks include (in roughly chronological order) the UBS and LGT leaks; the Julius Baer leak; HSBC “SwissLeaks”; the British Havens leaks; and the LuxLeaks scandal.

These tax leaks have revealed the offshore financial holdings and tax evasion and avoidance practices of various taxpayers, financial institutions, and tax havens. In so doing, they have been valuable in correcting long-standing informational asymmetries between taxing authorities and taxpayers with respect to these activities. Spurred by leaked data, governments and taxing authorities around the world have gone about punishing taxpayers and their advisers, recouping revenues from offshore tax evasion, enacting new domestic laws, and signing multilateral agreements that create greater transparency and exchange of financial information between countries.

Thus, it is clear that leaked data has started to be a significant driver in how countries conduct cross-border tax enforcement and make international tax law and policy. But using leaks to direct and formulate tax policy responses comes with some potentially serious pitfalls.

In a new paper—coming soon to an SSRN near you[fn.1]Diane Ring and I explore the social welfare effects of leak-driven lawmaking. Our argument, very generally, is that while data leaks can be socially beneficial by virtue of the behavioral responses they trigger and the enforcement-related laws and policies generated in their wake, there are under-appreciated downside hazards and costs to relying on leaked data in deterring tax evasion and making tax policy.

Continue reading “Leak-Driven Lawmaking”

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”

On Trump and Tax Opinions

Every so often, Brunson and Herzig carve out a day to swap long-winded emails, then those emails are published on the Internet.

Sam-

trump-returnI am sure you have seen by now the NY Times story about Donald Trump’s purported tax positions from the 1990.  The NY Times has been following up on a story they originally published about a month ago reporting that Mr. Trump reportedly had a $990 million net operating loss (“NOL”).  After the story, there was rampant speculation about the loss.

If Mr. Trump used exclusively all of his money to buy properties or casinos or whatever and those assets were used in a trade or business and those assets went down in value, Mr. Trump would suffer a real economic loss.  This real economic loss would then generate a real tax loss.  At the time, most tax experts thought that Mr. Trump may have used some of his money but all used loans.  I think I was quoted as saying this was likely given his prior statements about being the king of debt. Continue reading “On Trump and Tax Opinions”

Trump’s Abuse of Trump Foundation — Criminal Tax Implications?

 

By: Philip Hackney, Oct. 3, 2016

donald-j-trump-1342298_1280-1

Much attention is being paid to how Donald Trump could have amassed a $900 million NOL in the mid 90s. I remain laser-focused on the Donald J. Trump Foundation.  For this blog post I ask the question: could Mr. Trump’s misuse of the private foundation that he leads result in criminal sanctions under tax law?

I think there is enough evidence to open a criminal investigation into his activities. Nevertheless, a criminal prosecution is highly unlikely for both political reasons and issues of proof (ignorance of the law is a defense). Still, I think the IRS has a duty to open an investigation under the egregious set of facts I lay out.

Here is the important thing to keep in mind as you consider the arguments I lay out in this post: Donald Trump does not own the Foundation and its property does not belong to him. It does not matter from whom the money came. He is the president of a nonprofit organization that is entrusted with money to be used for charitable purposes that benefit the public. Continue reading “Trump’s Abuse of Trump Foundation — Criminal Tax Implications?”

Does Enforcement Reduce Compliance?

Shu-Yi Oei 

Boston College Law School held its first Tax Policy Workshop of the semester last Thursday and the speaker was Surly Blogger Leandra Lederman. Leandra presented a draft paper entitled “To What Extent Does Enforcement Crowd Out Voluntary Tax Compliance?” The draft isn’t publicly available yet, but you can email Leandra for a copy.

So, what’s the paper about? The standard economic model tells us that a taxpayer will weigh the magnitude of the penalty and the likelihood of audit to reach an “expected” cost of punishment for tax evasion. Allingham & Sandmo (1972). So, if the audit rate is low (which it is), the expected cost of evasion also remains low, absent draconian penalties. Yet, we see relatively high voluntary compliance rates in the U.S. Some scholars claim that this is a “puzzle” and theorize that there is some sort of “intrinsic motivation” to comply with tax obligations, regardless of the low expected costs of punishment. Leandra has pointed out in several articles that this simple comparison presents a false puzzle because it ignores information reporting (and withholding), which IRS voluntary compliance statistics show is highly effective. She argues that information reporting is akin to an invisible audit. Nonetheless, some scholars suggest that enforcement and deterrence action are “extrinsic motivators” that might actually reduce compliance by displacing (i.e., “crowding out”) preexisting internal motivations to comply.

Leandra’s paper synthesizes the empirical literature on the effects of audit threats and fines as well as the growing tax and non-tax literature on contexts in which enforcement can lead to reduced compliance. In brief, the paper finds:

Continue reading “Does Enforcement Reduce Compliance?”

House Staffer is a Tax Protester?

By: David J. Herzig

Politico reported yesterday that “Isaac Lanier Avant, chief of staff to Rep. Bennie Thompson (D-Miss.) and Democratic staff director for the Homeland Security Committee, allegedly did not file returns for the 2009 to 2013 tax years.”

According to the Department of Justice Press Release, Mr. Avant has been a staff member of the U.S. House of Representatives since 2002.  In 2005, he filed a form with “his employer that falsely claimed he was exempt from federal income taxes.  Avant did not have any federal tax withheld from his paycheck until the Internal Revenue Service (IRS) mandated that his employer begin withholding in January 2013.”

This seemingly innocent story might get more torrid.  For starters, missing from the press release by Justice is that, as Richard Rubin pointed out to me, Mr. Avant’s employer was Congress.  Do you hear the can of worms opening?  I mean, who at payroll in Congress is green-lighting the stopping of withholding?  What did his form look like? Did he make up an official and name it – W-NONE?  How many other staffer’s did this?  How did he never get audited?  According the the press release and the story, Mr. Avant did not file tax returns for 5 years; I guess a matching program would not catch anything since he had no withholding.  But, one would think Congress would at least ensure that every employee has filed a tax return.

Not sure which awesome tax protester argument he is going with.  Personally, I hope it is that he is a sovereign citizen.  It would be great if the Democratic staff director of Homeland Security thought the U.S. laws did not apply to him.  I guess we will have to wait for the actual complaint.  For those interested, the IRS has outlined numerous frivolous tax arguments.

 [UPDATE 8/24/16 at 8:41 pm: It appears that a claim of Sovereign Citizen might really be in play.  According to the Panolian, a local Batesville, Mississippi newspaper, Mr. Avant is the son of Vernice Black Avant and the late Robert Allen Avant Sr.  In 2011, according to the Panolian, Mr. Avant’s mother, who is also a court clerk, filed an “11-page ‘Affidavit of Truth'”  “declaring that she is a “freeborn Sovereign” are meant to distinguish her as an individual, distinct from a corporation.”  “The affidavit cites participation in the use of bank accounts, Social Security numbers, driver’s licenses, vehicle license plates and tax returns as ‘under duress.'”]