The § 199A Regulations: Looking Toward Finalization

By: Leigh Osofsky
Professor of Law, UNC School of Law

As the holiday season approaches, tax practitioners and commentators are waiting for the arrival of a much-anticipated event: the finalization of the § 199A regulations. The Treasury Department has indicated that it is trying to finalize the regulations before the end of the year or shortly thereafter. Treasury has moved expeditiously with this monumental regulatory project for good reason: with the New Year comes the first tax filing season that will require application of § 199A (though those filing estimated returns may have already tried to apply the section). While the proposed regulations indicate that taxpayers may rely on the proposed regulations until the date that the final regulations are published in the Federal Register, it is nonetheless beneficial to have a bit more certainty regarding the operation of the provision as soon as possible going into filing season.

So, what can we expect of the final regulations? Much of what we saw in the proposed regulations – the basic regulatory approach – will likely stay the same. As Shuyi Oei and I catalogued in a recent article, Beyond Notice-and-Comment: The Making of the § 199A Regulations, Treasury put significant work into formulating the proposed regulations. Treasury engaged in extensive dialogue with interested constituencies prior to the release of the proposed regulations in addition to going through OIRA review. The proposed regulations offer a lengthy and detailed presentation of why Treasury chose particular approaches such as, for instance, a narrow reading of the critical “reputation or skill” clause from the statute. These types of fundamental decisions from the proposed regulations are thus unlikely to radically change.

This is not to say there will be no changes at all in the final regulations. Treasury has signaled it may make some changes to parts of the aggregation rules. And S Corp banks lobbied extensively both as part of the notice-and-comment period and outside of it to increase the de minimis threshold for the specified service trade or business (“SSTB”) characterization. If their lobbying effort is successful, the threshold will go up in the final regulations and allow more S Corp banks and similarly situated businesses to avoid classification in the undesirable SSTB category. This would be a real win for such banks, especially given that the statute itself does not explicitly provide for a de minimis exclusion from the SSTB category. Many other taxpayers pleaded for greater clarity, and, in particular, clearer exclusion from SSTB categorization, including in a slew of requests made as part of the notice-and-comment process. Shuyi Oei and I documented much of this dynamic in our recent work. However, Treasury is unlikely to grant the certainty requested by all, as the taxpayers making the requests are surely aware.

So, who will get a present in finalization and who will get a lump of coal? We will all find out soon enough. But my money is on few major changes and a lot of little ones around the edges.

Tax Panels at the 2019 AALS Annual Meeting

By: Shu-Yi Oei

The Association of American Law Schools will be holding the 2019 AALS Annual Meeting in New Orleans, LA from January 2-6, 2019. This year, I’m the chair of the AALS Tax Section. Your section officers (Heather Field, Erin Scharff, Kathleen Thomas, Larry Zelenak, Shu-Yi Oei)  are pleased to bring you four tax-related panels at the Annual Meeting. Two are Tax Section main programs, and two are programs we are cosponsoring with other sections. Details below.

We’re also organizing a dinner for Taxprofs (and friends) on Saturday, January 5. If you’re on the distribution list, you should have received an email about that and how to RSVP. If you’d like more details, please email me.

We hope to see many of you at the Annual Meeting!

Tax Section Main Program:  The 2017 Tax Changes, One Year Later (co-sponsored with Legislation & Law of the Political Process, and Trusts and Estates)
Saturday, January 5, 2019, 10:30 am – 12:15 pm

Moderator:
Shu-Yi Oei, Boston College Law School
Speakers:
Karen C. Burke, University of Florida Fredric G. Levin College of Law
Ajay K. Mehrotra, Northwestern University Pritzker School of Law
Leigh Osofsky, University of North Carolina School of Law
Daniel N. Shaviro, New York University School of Law
Program Description: Congress passed H.R. 1, a major piece of tax legislation, at the end of 2017. The new law made important changes to the individual, business, and cross-border business taxation. This panel will discuss the changes and the issues and questions that have arisen with respect to the new legislation over the past year. Panelists will address several topics, including international tax reform, choice-of-entity, the new qualified business income deduction (§ 199A), federal-state dynamics, budgetary and distributional impacts, the state of regulatory guidance, technical corrections and interpretive issues, and the possibility of follow-on legislation.

Business meeting at program conclusion.

New Voices in Tax Policy and Public Finance (cosponsored with Nonprofit and Philanthropy Law and Employee Benefits and Executive Compensation)
Saturday, January 5, 2019, 3:30-5:15 pm

Paper Presenters:
Ariel Jurow Kleiman (University of San Diego School of Law), Tax Limits and Public Control
Natalya Shnitser (Boston College Law School), Are Two Employers Better Than One? An Empirical Assessment of Multiple Employer Retirement Plans
Gladriel Shobe (BYU J. Reuben Clark Law School), Economic Segregation, Tax Reform, and the Local Tax Deduction
Commenters:
Heather Field (UC Hastings College of the Law)
David Gamage (Maurer School of Law, Indiana University at Bloomington)
Andy Grewal (University of Iowa College of Law)
Leo Martinez (UC Hastings College of the Law)
Peter Wiedenbeck (Washington University in St. Louis School of Law)
Program Description:
This program showcases works-in-progress by scholars with seven or fewer years of teaching experience doing research in tax policy, public finance, and related fields. These works-in-progress were selected from a call for papers. Commentators working in related areas will provide feedback on these papers. Abstracts of the papers to be presented will be available at the session. For the full papers, please email the panel moderator.

Continue reading “Tax Panels at the 2019 AALS Annual Meeting”

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)”

A Series of Series? Tax, Regulation, and Faculty Workshops at Boston College Law School

I do love a good faculty workshop. Reading and spiritedly discussing the work of other academics always fills me with energy and inspiration for my own projects. Plus, it’s great to be able to spend time with new and old friends and find out what’s been baking in their brains.

Here at BC Law, I’m fortunate to be involved in two exciting workshop series: the BC Tax Policy Workshop and the BC Regulation and Markets Workshop. Both kicked off this week: On Tuesday, we hosted Professor Jens Dammann from the University of Texas at Austin and heard about his paper, “Deference to Delaware Corporate Law Precedents and Shareholder Wealth: An Empirical Analysis.” Today, we welcomed Professor Ajay Mehrotra (Northwestern Law; Executive Director, American Bar Foundation) and had a lively discussion of his book project, “The VAT Laggard: A Comparative History of U.S. Resistance to the VAT.” Tomorrow, BC Law will have its first Faculty Colloquium of the semester. Professor Guy-Uriel Charles (Duke Law; visiting at Harvard Law) will present “The American Promise: Rethinking Voting Rights Law and Policy for a Divided America.”

You can never have too many workshops!

Below are the dates and speakers for the remainder of the semester. If you’re a Boston-area law professor and are interested in attending or would like to be on our workshop email list, just let me know.

Tax Policy Workshop (Fall 2018):

Thursday September 13, 2018
Ajay Mehotra (Northwestern, and American Bar Foundation):
The VAT Laggard: A Comparative History of US Resistance to the VAT
(co-sponsored with BC Legal History Workshop)

Tuesday November 6, 2018
Andrew Hayashi (UVA): title TBD

Tuesday Nov. 13, 2018
Cliff Fleming (BYU): title TBD

Tuesday November 27, 2018
Emily Satterthwaite (University of Toronto): title TBD
(co-sponsored with BC Regulation and Markets Workshop)

Continue reading “A Series of Series? Tax, Regulation, and Faculty Workshops at Boston College Law School”

New Paper on Tax Legislative Process and Statutory Drafting

Shu-Yi Oei

For those readers in search of some light summer reading, Leigh Osofsky (UNC Law) and I have been working on a paper on statutory drafting, entitled “Constituencies and Control in Statutory Drafting: Interviews with Government Tax Counsels.” We finally got around to posting it on SSRN, here.

In the paper, we report findings from interviews we conducted with government tax counsels who have participated in the tax legislative process, in which we asked questions about various aspects of drafting and creating tax legislation. In addition to reporting our findings, we also discuss the implications of our research for statutory interpretation, tax system design, and the legislative process.

For readers interested in legislation, tax drafting, statutory interpretation, tax shelters, and the political process, the paper is probably worth a look. Feel free to contact either of us with comments.

 

 

 

 

 

 

The Gig Economy Battles Continue: 9th Circuit Weighs In on Seattle Uber Driver Ordinance

By: Diane Ring

Today the 9th Circuit weighed in on the validity of a Seattle ordinance that requires businesses contracting with taxi-drivers, for-hire transportation companies, and “transportation network companies” to bargain with drivers if a majority of drivers seek such representation. The legislation, which effectively enables Uber and Lyft drivers to unionize, drew objections from Uber, Lyft and the Chamber of Commerce— which sued the City of Seattle. In an August 2017 post, I reviewed the ruling of the U.S. District Court for the Western District of Washington, which concluded that the Seattle ordinance was an appropriate exercise of the city’s authority and did not violate the Sherman Act (because of state action immunity) and was not preempted by the National Labor Relations Act (NLRA).  So what did the 9th Circuit say?

Continue reading “The Gig Economy Battles Continue: 9th Circuit Weighs In on Seattle Uber Driver Ordinance”

Call for Papers: New Voices in Tax Policy and Public Finance (2019 AALS Annual Meeting, New Orleans, LA)

The AALS Tax Section committee is pleased to announce the following Call for Papers:

CALL FOR PAPERS
AALS SECTION ON TAXATION WORKS-IN-PROGRESS SESSION
2019 ANNUAL MEETING, JANUARY 2-6, 2019, NEW ORLEANS, LA
NEW VOICES IN TAX POLICY AND PUBLIC FINANCE
(co-sponsored by the Section on Nonprofit and Philanthropy Law and Section on Employee Benefits and Executive Compensation)

The AALS Section on Taxation is pleased to announce the following Call for Papers. Selected papers will be presented at a works-in-progress session at the 2019 AALS Annual Meeting in New Orleans, LA from January 2-6, 2019. The works-in-progress session is tentatively scheduled for Saturday, January 5.

Eligibility: Scholars teaching at AALS member schools or non-member fee-paid schools with seven or fewer years of full-time teaching experience as of the submission deadline are eligible to submit papers. For co-authored papers, both authors must satisfy the eligibility criteria.

Due Date: 5 pm, Wednesday, August 8, 2018.

Form and Content of submission: We welcome drafts of academic articles in the areas of taxation, tax policy, public finance, and related fields. We will consider drafts that have not yet been submitted for publication consideration as well as drafts that have been submitted for publication consideration or that have secured publication offers. However, drafts may not have been published at the time of the 2019 AALS Annual Meeting (January 2019). We welcome legal scholarship across a wide variety of methodological approaches, including empirical, doctrinal, socio-legal, critical, comparative, economic, and other approaches.

Submission method: Papers should be submitted electronically as Microsoft Word documents to the following email address: tax.section.cfp@gmail.com by 5 pm on Wednesday, August 8, 2018. The subject line should read “AALS Tax Section CFP Submission.” By submitting a paper for consideration, you agree to attend the 2019 AALS Annual Meeting Works-in-Progress Session should your paper be selected for presentation.

Submission review: Papers will be selected after review by the AALS Tax Section Committee and representatives from co-sponsoring committees. Authors whose papers are selected for presentation will be notified by Thursday, September 28, 2018.

Additional information: Call-for-Papers presenters will be responsible for paying their own AALS registration fee, hotel, and travel expenses. Inquiries about the Call for Papers should be submitted to: AALS Tax Section Chair, Professor Shu-Yi Oei, Boston College Law School, oeis@bc.edu.

Reform 2.0 – Some Passing Thoughts on S.B. 2687

Senator Ted Cruz has introduced S.B. 2687, described as a bill “to make permanent the individual tax rates in effect for taxable years 2018 through 2025.”  Speculation about the success of the effort has run the gamut (see here and here), but after last year’s holiday surprise, the new bill, which would lock in rate gains across the board, merits a quick read-through.  It is possible that Congress would pass this bill or a similar one. With the legislature having made corporate rate cuts permanent and individual rate cuts temporary, individual members may be motivated to respond to constituents’ distributive justice-based criticisms.

Notably, S.B. 2687 would make the increased estate tax exemption—previously $5 million, now $10 million—permanent.  Given that this Congressional love letter to the wealthy is paid for by permanently eliminating deductions for things like health care expenses, it might be a wish-list item for Republicans to use as a bargaining chip.  It affects a vanishingly small number of constituents, and allowing Democrats to win on this front might be face-saving enough to swing a vote or two.

Most of the proposed legislation is business as usual though.  The bill would, as advertised, make the new personal income tax rate cuts permanent.  It would permanently repeal the personal exemption and miscellaneous itemized deductions, and it would continue to limit the home mortgage interest deduction and the deduction for state and local taxes.  As I previously have written, repeal of the personal exemption might adversely affect large and non-traditional families, a possibility that the original reform and Senator Cruz’s subsequent effort would mitigate (but not eliminate) by doubling the child tax credit.  For more on that, see Shannon Weeks McCormack’s article here.

A couple of miscellaneous provisions in the bill are worth mentioning (and here, I am not claiming to be comprehensive).  The first would permanently restrict deduction of moving expenses under IRC § 217 to members of the armed forces who relocate in connection with active duty.  As long as we are re-upping this provision for Congressional consideration, why not add Americorp and Teach for America to it?  Moving allowances for these programs may not cover all of the participant’s cost, but like members of the armed forces, participants move on assignment in service to their country.  Adding Americorp and Teach for America to section 217 likely will not cost much—these young people don’t have high incomes, so their deductions are proportionately smaller— and their inclusion in section 217 signals the importance of their public service.  Our laws embody our values, and allowing the moving expense deduction for Americorps and Teach for America participants would more broadly express the government’s vision of personal sacrifice for the public good.

A second interesting provision of S.B. 2687 is permanent repeal of IRC § 132(f)’s exclusion for qualified bicycle commuting expense reimbursements.  Is it just me, or is this narrow repeal sort of peculiar?  From a nudge perspective, the exemption seems like a net good.  Biking is expensive, and people on the margins otherwise might choose to drive, causing pollution and diseases associated with a sedentary lifestyle.  On the other hand, we all know that in most cities, only the truly committed bike to work.  It’s dangerous; it requires a lot of gear and a funny hat; and at the other end, despite what people may tell you, you need a shower.  Cyclists don’t need a tax incentive; they are impervious to people who swear at them from the passing lane, and they will bike whether we pay them to or not.  In fact, the market appears to be so inelastic that Oregon taxes bicycles.  Maybe the fringe benefit for cyclists is not warranted on behavioral grounds.  But even if the section 132 allowance doesn’t change anyone’s behavior, allow me to park a final question in this spot.  Why single out this one small piece of the Code for elimination when, perhaps, all of section 132 is due for a tune-up?

Follow me on Twitter– @prof.hoffer

IU Tax Policy Colloquium: Burman, “The Rising Tide Wage Credit”

Colloquium pic)
Left to right: Len Burman, Tim Riffle, Leandra Lederman, Karen Ward, Frank DiPietro, Brad Heim

By: Leandra Lederman

On April 5, the Indiana University Maurer School of Law’s Tax Policy Colloquium welcomed Len Burman from Syracuse University and the Urban Institute/Tax Policy Center, who presented “The Rising Tide Wage Credit.” This intriguing new paper is not yet publicly available.

The paper proposes replacing the existing Earned Income Tax Credit (EITC) with a new credit, the Rising Tide Wage Credit (RTWC), which, unlike the EITC, would be universal for workers, rather than phased out above low income levels. The RTWC also would differ from the EITC in that the amount of the RTWC would not depend on the number of children the taxpayer has. Instead, the RTWC would be a 100% credit in the amount of a worker’s wages, up to $10,000 of wages. The credit could be claimed on the taxpayer’s tax return, or subject to advance payment via the taxpayer’s employer. Thus, the maximum credit for an unmarried taxpayer would be $10,000, and for a married couple filing jointly would be $20,000. (The credit would not have a marriage penalty.) The credit would be indexed to increase with increases in GDP.

Because the proposed new credit would not vary with the number of children the taxpayer is supporting, the paper also proposes increasing the child tax credit from $2,000 to $2,500, and proposes making the child tax credit fully refundable (rather than partly refundable, as it is under current law). The RTWC and the increase in the child tax credit would be funded by a value added tax (VAT). The paper estimates that the proposal could be fully funded with an 8% VAT, along with federal income tax on the RTWC. A VAT was chosen as the funding mechanism because it is closely correlated with GDP. The paper discusses 3 illustrative examples and includes a table that shows the overall progressivity of the proposal under certain assumptions. Continue reading “IU Tax Policy Colloquium: Burman, “The Rising Tide Wage Credit””

Stephanie McMahon, “Tax as Part of a Broken Budget: Good Taxes are Good Cause Enough”

By: Leandra Lederman

IMG_5084
Left to right: David Gamage, Leandra Lederman, Stephanie McMahon, Matt Metz (JD/MPA student)

On February 28, Prof. Stephanie McMahon from the University of Cincinnati College of Law gave a faculty workshop at the Indiana University Maurer School of Law. She presented her paper titled “Tax as Part of a Broken Budget: Good Taxes are Good Cause Enough.” The thesis of the paper is that Treasury regulations are needed to effectuate the statutory tax laws consistent with Congress’s budgeting expectations, and that given the importance of the revenue raised by taxes to the functioning of the U.S. federal government, tax regulations should be excused from the Administrative Procedure Act’s pre-promulgation notice-and-comment process under the APA’s “good cause” exception. The paper thus tackles two arguments that Prof. Kristin Hickman has advanced in her work: post-promulgation notice and comment is insufficient for tax regulations, and there is no reason for “tax exceptionalism” in administrative procedures. Stephanie’s paper also contains a detailed explanation of the tax legislative process.

Given the importance of tax rulemaking and the difficulties the IRS has suffered with its well-known budget cuts, it is very nice to see a paper defending Treasury’s rulemaking strategy. Moreover, Stephanie’s argument is creative and thoughtful. However, the argument seems to depend on regulations being a critical part of the revenue-raising process, as the need for revenue is what Stephanie relies on to justify application of the good-cause exception. But are regulations needed for that? In explaining the budget process, Stephanie’s paper points out that regulations are not scored as part of that process. I think she agrees that tax statutes can raise revenue even in the absence of regulations. Instead, she argues that regulations help effectuate, albeit imperfectly, Congress’s scoring of the tax legislation. But some Internal Revenue Code sections do not expressly call for regulations. Others do, but some of the latter never actually see regulations promulgated. Yet, the tax laws are applied despite these “spurned delegations.” And given President Trump’s anti-regulation Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs, we may see more tax statutes operating without regulations. Continue reading “Stephanie McMahon, “Tax as Part of a Broken Budget: Good Taxes are Good Cause Enough””