Jussie Smollett and the Illinois Film Tax Credit

By Sam Brunson

By Ben P L. CC BY-SA 2.0

On Tuesday, Joe Magats, first assistant state’s attorney for Cook County, announced that he was dropping the charges against actor Jussie Smollett. Instead of a trial and punishment, Smollett agreed to forfeit his $10,000 bond and do community service.

Cook County prosecutors say this is a relatively normal type of alternative prosecution, one that prosecutors have recommended for over 5,700 offenders. It allows prosecutors to use their resources to prosecute violent offenders.

Not surprisingly, there’s some outrage about this alternative prosecution, notably from Chicago Mayor Rahm Emanuel and CPD Superintendent Eddie Johnson. But this is a tax blog, not a criminal justice blog, so questions about the justice (or not) of dropping Smollett’s prosecution are outside of our usual scope. Which is why I’m going to focus, instead, on Illinois Representative Michael McAuliffe and his terrible, horrible, no good, very bad bill. Continue reading “Jussie Smollett and the Illinois Film Tax Credit”

More on the College Admissions Scandal

By Sam Brunson

On Wednesday, I posted about how tax law played a central role in the college admissions scandal. As I’ve read through a little more of the affidavit, I decided to highlight two additional detail in this whole scandal, details that suggest that, for at least some of the participants, the tax consequences were very important.

Bruce Isackson and Facebook Stock

Bruce Isackson is the president of WP Investments, a real estate investment and development fund.[fn1] According to the affidavit, he used the fake athlete thing (soccer for the older daughter, rowing for the younger) to get two daughters into USC. He seems to have also paid for his younger daughter to get a better ACT score.

What’s interesting for purposes of this post is how he paid. Continue reading “More on the College Admissions Scandal”

Key Worldwide Foundation and College Admissions Scams

By Sam Brunson

When I first read about the massive college admissions scam, I read it for roughly the same schadenfreude as everybody else. It was an interesting—and frankly, kind of pathetic—story of wealth and entitlement.

And then I read the affidavit supporting the criminal indictment. And I learned that, as much as this is a story of wealth and entitlement, it’s more than that: this is a story that revolves around taxes. And specifically, the abuse of a tax-exempt organization.

There seem to have been two main schemes to get participants’ kids into schools they wouldn’t have otherwise qualified for. The first involved cheating on entrance exams. The second involved bribing athletic directors and others to designate their kids as athletic recruits (often in sports the kids didn’t play), and , each of which had its own fee structure. But each scheme had something in common. The recipient of the payments was Key Worldwide Foundation. Continue reading “Key Worldwide Foundation and College Admissions Scams”

A Mission From God: Blues Brothers and Tax

By Sam Brunson

On February 1, Amazon Prime Video started streaming Blues Brothers. Now, in spite of its being one of the great movies of the 20th century, and having one of the greatest soundtracks ever, I hadn’t seen it in years, and definitely not since I moved to Chicago. So I decided to watch it, both because I love the movie and because I wanted to see its view of Chicago now that I know this city.

I remembered that the plot revolved around Jake and Elwood trying to raise $5,000 for the orphanage they grew up in or the orphanage will be closed, but I’d forgotten that the $5,000 was to pay the orphanage’s property tax assessment:

I’d also never watched a movie with Amazon’s X-Ray feature before. And X-Ray announced that the motivation for their mission from God is a factual error, because Illinois doesn’t tax church property.

Is that true? Continue reading “A Mission From God: Blues Brothers and Tax”

#AcademyAwards2019, Swag Bags, and the IRS

By Sam Brunson

Every year, it seems like there’s something in the news about the Academy Awards swag bags (valued at $100,000 this year!) and taxes. And, since the Academy Awards are tonight, and since this is a tax blog, we might as well say something about the taxation of swag bags. And wouldn’t you know it: an article had a decently bad take on the taxation, giving me a hook for a tweetstorm, which I now reproduce here for your reading pleasure. Happy Academy Awards Day!

Continue reading “#AcademyAwards2019, Swag Bags, and the IRS”

Zelenak: IU Tax Policy Colloquium, “The NCAA and the IRS” & Tax Sitcom Night

IMG_7047
Left to right: Tim Riffle, David Gamage, Leandra Lederman, Larry Zelenak, Kevin Brown

By: Leandra Lederman

On February 14, the Indiana University Maurer School of Law’s Tax Policy Colloquium hosted Larry Zelenak from Duke University School of Law. Larry presented his fun new paper, co-authored with his colleague Rich Schmalbeck, “The NCAA and the IRS: Life at the Intersection of College Sports and the Federal Income Tax.” Larry really hit this one out of the park, with a crowd that was nearly standing-room-only! Larry also hosted a terrific Valentine’s evening event, “Tax Sitcom Night,” featuring three classic sitcom episodes in which couples encounter the federal income tax together. I’ll discuss each of these briefly in this blog post.

Larry and Rich’s paper argues that the IRS has not done as much as Congress to cut back on “unreasonably generous tax treatment” of college athletics. The paper covers four principal topics, which Larry explained was a combination of Rich’s work on two issues and Larry’s on the other two. The four topics are:

  • The possible application of the unrelated business income tax to college sports;
  • the federal income tax treatment of athletic scholarships;
  • the recently changed tax treatment of charitable deductions for most of the cost of season tickets to college ball games; and
  • the new 21% excise tax of IRC § 4960 on compensation in excess of $1 million on certain employees of tax-exempt organizations.

Each of these topics is interesting in its own right, and together they make a strong case that the IRS, and Congress at times, have tilted the playing field in favor of college athletics at the expense of protection of the federal fisc. I won’t give a play-by-play of these four issues here, as the paper does a great job of it and is available on SSRN, but I will mention a couple of highlights. Continue reading “Zelenak: IU Tax Policy Colloquium, “The NCAA and the IRS” & Tax Sitcom Night”

The IRS Did Not Violate the First Amendment in Declining to Exempt Organizations to Help Marijuana Dealers

By Ellen P. Aprill

Several commentators have called attention to the statement of the IRS in Revenue Procedure 2018-5, just reiterated in Rev. Proc. 2019-1, that it will not issue a determination letter recognizing exemption from income tax for “an organization whose purpose is directed to the improvement of business conditions of one or more lines of business relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted.”

These commentators suggest that this position could constitute impermissible viewpoint discrimination in violation of the First Amendment.  I do not view the IRS announcement in this way. Instead, I see it as an application of the long-standing principle denying exemption to entities with an illegal purpose or engage primarily in illegal activities.

The illegality doctrine has long prevented exemption under section 501(c)(3), the category that encompasses what we generally call charities. In the words of Section 101(c) of the ALI Draft Restatement of the Law of Charitable Nonprofit Organizations, “[a] purpose is not charitable if it is not lawful, its performance requires the commission of criminal or tortious activity, or it is otherwise contrary to fundamental public policy.”  Continue reading “The IRS Did Not Violate the First Amendment in Declining to Exempt Organizations to Help Marijuana Dealers”

Happy #TaxValentines Day!

TwitterHeartBy: Leandra Lederman

#TaxTwitter has been waxing poetic again this year. The #TaxValentines are not to be missed!

I’ll post just one (a new one) here; follow the links above to see more!

Roses are red
I give you my heart
And all of my tax problems
‘Til death do us part

#TaxValentines #IRC6013d3 #notsoinnocentspouse

Happy Valentine’s Day! ❤

Redacted History: Tax Privacy and the KKK

By Sam Brunson

Tax Lien by Nick Youngson, CC BY-SA 3.0, Alpha Stock Images, Original image at The Blue Diamond Gallery.

A year and a half ago, I learned that in the 1940s, the IRS revoked the Ku Klux Klan’s tax exemption and sued it for almost $700,000 in back taxes. Two years later, the IRS filed a tax lien against the KKK’s assets. While that may not have been the death blow to the 1920s iteration of the KKK, it was certainly part of the death blow.

I’ve since learned a lot more about the whole story, including how the KKK could claim exemption in the first place. I’ve read dozens of contemporary (and retrospective) newspaper articles about the revocation. Heck, I’ve read through a couple Stetson Kennedy archives. I’m dying to write an article about this piece of history.

There’s only one problem: I don’t know why the KKK lost its exemption.

Continue reading “Redacted History: Tax Privacy and the KKK”

Elizabeth Warren and the Wealth Tax

By United States Senate, Public Domain

By Sam Brunson

It’s not even an election year, but the last couple weeks have been exciting for tax policy fans. First was Rep. Alexandria Ocasio-Cortez inserting the idea of a 70% top marginal rate into the public conversation. Then today, Sen. Elizabeth Warren proposed a wealth tax on taxpayers with household wealth in excess of $50 million. While she hasn’t released details, and the news reports aren’t completely clear, I’m assuming that households would pay 2% of their net worth in excess of $50 million, and an additional 1% on their wealth in excess of $1 billion.[fn1]

Can the government do that? Maybe, but probably not with a traditional wealth tax.  Continue reading “Elizabeth Warren and the Wealth Tax”

The Fyre Festival: Intro to Ja Rule’s Tax Troubles

By Sam Brunson

Photo by Eduardo Santos. CC BY 2.0

Like much of America, I watched a Fyre Festival documentary last week. I chose Hulu’s Fyre Fraud over Netflix’s Fyre: The Greatest Party That Never Happened because I only had time for one, and Fire Fraud had an interview with Billy McFarland. (I’ve since heard great things about Netflix’s documentary, too, so I’ll probably watch it eventually.)

About nineteen and a half minutes into the documentary, we’re introduced to Ja Rule; we see him in an interview (with Wendy, apparently), who says to him, “So you spent two years in prison.”

He responds, “Yeah, I went in on my state charge for the gun charge, and they ran it concurrent with my tax stuff.”

Now, Ja Rule’s tax troubles are probably the least interesting part of the documentary (and are over, iirc, as soon as he laughs after saying “tax stuff”). But I always find celebrity tax evasion interesting, so I thought I’d run it down a little. Continue reading “The Fyre Festival: Intro to Ja Rule’s Tax Troubles”

Evelyn Brody in the Gallery

By Sam Brunson

Evelyn Brody with her painting “When in French”

Have you ever wondered what tax professors do when they’re not doing tax? In the case of Evelyn Brody (Chicago-Kent College of Law), one answer is art.

I’m sure most people who read this blog are familiar with Evelyn’s academic work, but if you’re not, she teaches and writes broadly in the income tax and nonprofit law areas. She also paints.

And when I say paints,” I mean it. Almost two weeks ago, she opened “Suspended Animation,” an exhibition of her pastels at the Leslie Wolfe Gallery. This afternoon I went to the reception she hosted at the gallery. Continue reading “Evelyn Brody in the Gallery”

Coming Soon: Trump’s Tax Returns (or Maybe Not)

By Sam Brunson

As we’re all acutely aware, in his presidential campaign, Donald Trump flouted decades of history by refusing to release his tax returns. And given that (a) the history was based on norms, not law, and (b) the Republican-controlled Congress did nothing to enforce the norms (or transform them into law), he continued to flout that norm throughout the first two years of his presidency.

But on January 3, 2019, Democrats will gain control of the House. And Democratic Representatives have made pretty clear that one of their first agenda items will be to request Trump’s tax returns. So does that mean we’ll finally get access to his tax returns?

Maybe. (But probably not.) Continue reading “Coming Soon: Trump’s Tax Returns (or Maybe Not)”

Wesley Snipes and His Offer-in-Compromise

By Sam Brunson

By nicolas genin from Paris, France [CC BY-SA 2.0], via Wikimedia Commons
You may remember about a decade ago, when Wesley Snipes was sentenced to three years in prison for willfully failing to file tax returns. During his sentencing, Snipes apologized for his “mistakes and errors,” and promised that “[t]his will never happen again.”

He did not, however, mention taxes in his apology. And apparently, the “this” that he promised would never happen again was not failing to pay his taxes.

Yesterday, the Tax Court issued an opinion holding that the IRS did not abuse its discretion in denying Snipes’s offer-in-compromise. Continue reading “Wesley Snipes and His Offer-in-Compromise”

Seventh Circuit Preview: Gaylor v. Mnuchin

By Sam Brunson

A week from Wednesday, the Seventh Circuit will hear oral arguments in Gaylor v. Mnuchin, the case in which the Freedom From Religion Foundation is challenging the constitutionality of the parsonage allowance.[fn1]

In anticipation of the oral arguments, Professor Anthony Kreis and I are hosting a preview of the case this Wednesday, October 17, at noon. It will be in room 105 of the Corboy Law Center, 25 E. Pearson St., Chicago, IL 60611. There will be pizza, soda, and some great discussion. If you’re free for that hour (and, of course, in or near Chicago), I’d love to see you there! RSVP here. Continue reading “Seventh Circuit Preview: Gaylor v. Mnuchin”