Category: Tax Policy

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” →

The Distortive Effects of Partially Repealing the SALT Deduction

By Adam Thimmesch

The treatment of the state and local tax deduction under the GOP’s tax bill has gotten a lot of attention since the bill’s roll out last week. All else being equal, the proposed changes would disproportionately impact high-income taxpayers in blue states, and that issue is front and center in discussions about the bill. The TCJA is also noteworthy, however, in that it does not propose completely eliminating the SALT deduction as had been previously discussed. Instead, it contains a partial repeal for some taxpayers. That creates some noteworthy distortions that might escape the attention of the average person following these discussions.

Continue reading “The Distortive Effects of Partially Repealing the SALT Deduction” →

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” →

Some Initial Thoughts on the Paradise Papers Leak

Shu-Yi Oei

Another data leak broke on Sunday, November 5, while I was on a plane home from Bergen, Norway. Coincidentally, Diane Ring and I were in Bergen presenting our Leak-Driven Law paper at a tax conference organized by Max Planck Institute for Tax Law and Public Finance, Norwegian Centre for Taxation, and Notre Dame University.

This new “Paradise Papers” leak involves a set of 13.4 million records from 1950 to 2016.

From the ICIJ’s website:

“The new files come from two offshore services firms as well as from 19 corporate registries maintained by governments in jurisdictions that serve as waystations in the global shadow economy. The leaks were obtained by German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and a network of more than 380 journalists in 67 countries.”

The two offshore services firms in question are the offshore law firm Appleby and Asiaciti Trust, an offshore specialist headquartered in Singapore. Over 7 million of the records came from Appleby and affiliates.

Diane and I argued in Leak-Driven Law that (1) the high-salience and shocking nature of tax and other leaks and (2) the interventions of the press and other actors in processing, framing, and generating publicity about these leaks are important features that can affect how legal responses and reactions occur in the aftermath of a leak. We’ll be keeping track of how events unfold in the aftermath of this latest leak and how it fits or doesn’t fit with the observations in our paper:

Some initial notes and reactions:

This was at Least in Part a Cyber Hack.

Most of the news coverage I’m seeing is focused on the content on the leak, but it’s worth noting that at least with respect to Appleby, this new leak was in part a result of a cyberattack on Appleby that happened last year. I haven’t seen anything to suggest that this was a data theft by an insider (e.g., employee) turned whistleblower. In its response to the leak, Appleby defended itself and noted the challenges of cyber-crime for individuals and businesses.

The Appleby Hack Occurred in 2016.

Continue reading “Some Initial Thoughts on the Paradise Papers Leak” →

GOP Raises Taxes on Graduate Students … Or Does It?

Patrick W. Thomas
Professor of the Practice, Notre Dame Law School

We’ve all been poring over the GOP tax bill, released last week. On my initial read, I mainly looked at those provisions that affect my own practice in a Low Income Taxpayer Clinic: the expansion/restriction of the Child Tax Credit; the elimination of the dependency exemption; and the lack of any expansion in the Earned Income Tax Credit (paging Paul Ryan…). Selfishly, I also calculated the bill’s effect on my own taxes: a nearly 3% tax cut that I do not need!

Or so I thought. You see, my wife is a Ph.D. student in computer science who, like most students at the University of Notre Dame, receives a full tuition waiver, in addition to a stipend from the university. As I returned home on Friday, ready to put the tax bill out of mind for a couple hours, I saw a tweet from Claus Wilke, professor of integrative biology at the University of Texas:

Uh oh. Back to tax policy on a Friday night, it seems. And, perhaps, so long to that tax cut. Continue reading “GOP Raises Taxes on Graduate Students … Or Does It?” →

What Happened to Family Values?

By: Francine J. Lipman

The House GOP Bill is out and tax professionals across the globe are reading and re-reading the 429 pages of details. A few of the many things that jump off of the pages for me are that it doesn’t seem to support working families with kids (it REPEALS the up to $5,000 exclusion from gross income for dependent care assistance that many working parents use to subsidize the skyrocketing costs of child care while they work) or even those who (like my fantastic law students at UNLV) are pursuing and paying for higher education.

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Continue reading “What Happened to Family Values?” →

Missing In Tax Reform: What About the Gas Tax?

By: David J. Herzig

I, and others, certainly will have plenty of articles about what is wrong and right about the current tax cuts proposals.  But, as I read the plan, I became frustrated with a proposal that was missing – fixing the Highway Trust Fund.

Infrastructure spending is a priority of this administration.  In the spring President Trump announced his $1 Trillion ($1,000,000,000,000) infrastructure plan.   According to the administration, the plan will rebuild the nation’s roads, tunnels and bridges.  By September, the administration was contemplating how to pay for this spending from private sector credits to dumping the burden on the states.

The most recent discussion of how to pay for the $1 Trillion spend happened during discussions with the House Ways and Means members.  According to the Washington Post, “At the meeting Tuesday, Higgins said Trump indicated the administration instead would seek to pay for infrastructure upgrades through direct federal spending — either by paying for projects with new tax revenue or by taking on debt.”

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I was hoping, I know naivety, that another option would be discussed – pay for the infrastructure spending like always via the Highway Trust Fund which generates revenues via the gasoline and diesel tax.  Since there would be a budgetary shortfall, maybe we should actually increase or fix the tax.

History of Gas Tax Continue reading “Missing In Tax Reform: What About the Gas Tax?” →

Some Tax Reform Links and Tweets over at #BLPB

Ann Lipton at Business Law Profs Blog has assembled a nice collection of links to news commentary and tweets about the House tax bill.

Many of the links Ann has assembled look at the industry and deal-specific impacts of the tax bill…For example, potential effects on LBOs, sports stadium financing, future of stock options, higher education, and homebuilders.  A nice complement to the more ubiquitous analyses of revenue effects, scoring, and distributional estimates we’re seeing on the tax prof/economists side. This information about who is likely to feel what effects gives us some insights into how the politics/political economy of this tax reform is likely to unfold going forward. Well worth a click.

The Johnson Amendment Under GOP Plan

By: David Herzig

Back in May, I continued to track President Trump’s promise to end the Johnson Amendment.  At that time he promised during a National Prayer Breakfast that he would “get rid of and totally destroy” the Johnson Amendment and promised to issue an executive order (which he signed May 4).

But, a significant problem with legislating via Executive Order is that executives change and with the change so goes the Executive Orders.  What works much better is legislation. Enter, the Tax Cuts and Job Act, where there is a proposal to end the Johnson Amendment.

What is the Johnson Amendment? In 1954, without explanation, Lyndon Johnson  Continue reading “The Johnson Amendment Under GOP Plan” →

ABA Tax Section 5th Annual International Tax Enforcement and Controversy Conference (Washington, DC, Oct. 27, 2017)

 By: Diane Ring

Yesterday my frequent co-author, Shu-Yi Oei, and I attended the ABA’s conference on “International Tax Enforcement and Controversy” in DC. The panels and discussion covered a range of interesting intersecting issues. These included: (1) the relationship among international organizations and bodies (such as the OECD, UN, World Bank, IMF and G20) in directing the shape of international tax law content and enforcement; (2) the place of developing countries in the evolving international tax system; (3) competing goals of finance ministers and tax ministers in various countries and the impact of that conflict on taxpayers; (4) the consequences of and responses to limited IRS resources; and (5) continuing benefits to enforcement from the Swiss Bank Program.

But probably the most significant theme that ran through the day’s discussion was the role of data, especially “big data”. . . .

Continue reading “ABA Tax Section 5th Annual International Tax Enforcement and Controversy Conference (Washington, DC, Oct. 27, 2017)” →

Tax Surveillance and Tax Design

By Adam Thimmesch

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Late last week, I ran across an article from the UK (thanks tax Twitter!) regarding a significant uptick in the number of vehicles being “clamped” or impounded in the UK due to a failure of their owners to pay a required road tax. The story wouldn’t have really captured my attention, but for its inclusion of a quote from the Driver and Vehicle License Agency’s National Wheelclamping Manager. In response to the release of information about increased noncompliance with the tax, the DVLA posted a warning on its website: “Our enforcement teams are out and about on the roads around the UK all year. Their vans are equipped with number plate recognition cameras so any vehicle that isn’t taxed is at risk of being clamped or impounded.” As someone who has spent a lot of time thinking about tax privacy lately, this was intriguing, so I did some digging.

Continue reading “Tax Surveillance and Tax Design” →

International Sharing Economy Conference: Day 1 Takeaways

By: Diane Ring

Today the “Reshaping: Work in the Platform Economy” Conference got underway in Amsterdam. In contrast to many academic conferences, the explicit goal here is to bring together a truly wide array of actors in the sharing economy (policy makers, academics, actual gig workers, platform businesses, research institutes, and media) in a mixed format setting that includes academic presentations, panel presentations by gig workers, small group active round tables, and research-poster sessions. The international dimension, with participants and presenters from a variety of jurisdictions, contributes to the breadth of discussion.

I thought I would offer a few of my takeaways from day one: Continue reading “International Sharing Economy Conference: Day 1 Takeaways” →

Remedies and the Parsonage Allowance

By Sam Brunson

On Friday, the Western District of Wisconsin ruled (again) on the constitutionality of the section 107(2) rental allowance for “ministers of the gospel.”[fn1] The litigation between the Freedom From Religion Foundation and the IRS has been going on for a long time—I first blogged about it in 2013—so I’m not going to spend a lot of space here discussing the specifics of the case. If you want to look at what’s been going on, you can check out this post and the posts I’ve linked to in it.[fn2] Long story short, this is the second time the court has ruled the rental allowance is unconstitutional. The first time, the Seventh Circuit reversed on the grounds that the plaintiffs had never tried to claim a tax-free rental allowance, so they had no standing. This time, they did claim a refund, which the IRS refused, the court found standing, and, in a well-written and extremely persuasive opinion, it again found section 107(2) unconstitutional.

Although the court declared that section 107(2) violated the Establishment Clause, it didn’t order a remedy. The opinion explains that in the first round, all of the parties assumed that the only relief available was to declare the provision unconstitutional and enjoin its enforcement. This time, though, the Freedom From Religion Foundation suggests that there may be two other remedies available. The first is to refund a portion of plaintiffs’ taxes and order the IRS to “extend benefits under the statute to those excluded.” The second is to declare section 107(1) (that is, the in-kind provision of tax-free housing to “ministers of the gospel”) also unconstitutional. Continue reading “Remedies and the Parsonage Allowance” →

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” →