Category: Taxes and Politics

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” →

FY 2018 Appropriations Bill and the IRS

Last Thursday, the House passed an appropriations bill by a vote of 211 to 198. At this point, it’s anybody’s guess how much of the appropriations bill will survive the Senate, but, just in case, it’s worth taking a look at it. And, it turns out, the House really wants to use the appropriations bill to regulate the IRS. Some of the provisions strike me as warranted. Some innocuous. Some strike me as bizarre, payback, perhaps, for long-held grudges. And some strike me as downright insidious. In this post I’m going to focus on the last two categories because frankly, they’re more fun to write about.

The provisions that regulate IRS behavior can be found in sections 101-116 of the appropriations bill. And what provisions are bizarre payback or downright insidious? Continue reading “FY 2018 Appropriations Bill and the IRS” →

Responding to the SPLC “Exposé”

By Sam Brunson

Last week, the Free Beacon ran an exposé of the Southern Poverty Law Center, making four principal claims. First, the Free Beacon said, the SPLC was keeping literally tons of money in offshore tax haven investment funds and bank accounts. Second, it spends too much on fundraising. Third, it overpays its executives. Fourth, it underspends on its mission.

The problem with the exposé? At best it misunderstands what’s going on, and at worst, it is flagrantly wrong.

I’m usually not interested in doing fact-check-style responses, but I’m going to nonetheless. The accusations Schoffstall levels sound plausible, so it’s worth explaining why and how they’re wrong.[fn1] Continue reading “Responding to the SPLC “Exposé”” →

The Zelda Tax

Yesterday, the House Republicans posted “What Do the The Legend of Zelda and the American Tax Code Have In Common?”

Sadly, by the time I read about it on Twitter, the post had been taken down.

Why did the post come down? Probably because it was instantly and ruthlessly scorned, mostly because it claimed Nintendo had been founded in 1985 (it was founded in 1889). It has now been reposted with the dates corrected.

Unfortunately, the GOP didn’t correct the bigger flaw in the post: it promised something awesome and failed to deliver. See, what do Zelda an the Internal Revenue Code have in common? Zelda was released in 1986 and the last fundamental tax reform happened in 1986. Continue reading “The Zelda Tax” →

Slurpees and the Cook County Sweetened Beverage Tax

Me with my Slurpee.

By Sam Brunson

Today and tomorrow are 7-Eleven’s annual Bring Your Own Cup Day. In case you’re not familiar with it (or your Facebook feeds aren’t filled with bizarre containers of florescent sugar-ice), on #BYOCupDay, you can bring any container in your house to a 7-Eleven and, as long as it fits in the Slurpee machine, you can fill it up for $1.50.

After my wife and kids spent the day on the beach watching the Air and Water Show rehearsal, they were ready for some Slurpee. So, when I got out of work, we walked the three blocks to the nearest 7-Eleven. (Last year, we took berry-picking buckets; this year, we were much more modest and just brought cups my father-in-law bought when we took him to a Cubs game a couple years ago.)

When we got to the store, we were greeted by this sign: Continue reading “Slurpees and the Cook County Sweetened Beverage Tax” →

The Front Lines of Sharing Economy Legal Debates

By: Diane Ring

Last month I blogged about new proposed legislation in Congress that sought to provide a safe harbor for gig worker classification for tax purposes. However, as I noted, the proposal implicitly favored one side of the debate by making the safe harbor one that would ensure the “easy” ability to classify a worker as an independent contractor (rather than an employee). In that post, I suggested that having tax lead the charge in this sharing economy worker classification debate perhaps allowed the tax “tail” to lead the employment relations “dog”. There are pressing nontax issues in the sharing economy that are driving litigation and dominating worker concerns – particularly employment law issues. Just last week, we saw further evidence of serious tensions in the landscape of sharing economy labor law.

On Tuesday, July 31, 207, in Chamber of Commerce of the United States, et al.,  v. The City of Seattle, a U.S. federal judge dismissed a challenge to legislation approved by the Seattle City Council in fall 2015. Pursuant to the Seattle law, businesses that hire or contract with taxi-drivers, for-hire transportation companies and “transportation network companies” must bargain with drivers if a majority want to be represented. That is, Seattle effectively allows Uber and Lyft drivers to unionize. Not surprisingly, Uber and Lyft objected to the law . . . Continue reading “The Front Lines of Sharing Economy Legal Debates” →

The Tail, the Dog, and Gig Workers

By: Diane Ring

tail.dog

New legislation has just been introduced in the Senate that creates a “safe harbor” for independent contractor status. The proposed legislation provides that if a worker relationship satisfies certain criteria, then that worker can bypass the sometimes messy, multi-factor test for distinguishing between employees and independent contractors, and will be classified as an independent contractor for tax purposes. What prompted action now to address what has been a decades-old classification challenge for workers, businesses and the IRS alike? The gig economy. (Hence, the not-so-catchy title for the legislation: The New Economy Works to Guarantee Independence and Growth (NEW GIG) Act of 2017 (S. 1549).)

The legislation’s sponsor, Senate Finance Committee member John Thune, (R-S.D), described the impetus for the legislation as follows: “My legislation would provide clear rules so that these freelance style workers can work as independent contractors with the peace of mind that their tax status will be respected by the IRS.”

Is this really what gig workers are worrying about? . . . Continue reading “The Tail, the Dog, and Gig Workers” →

President Trumpeting Marketplace Fairness?

By Adam Thimmesch

Hello everyone! I’m excited to be joining the Surly Subgroup and appreciate the opportunity to share some of my thoughts in thus forum. I’ve been at the University of Nebraska College of Law since 2012, and I teach Individual Income Tax, State and Local Tax, Corporate Tax, Corporate Finance, and Business Associations. Much of my research to date has focused on state-tax issues, though I’ve recently been spending time also thinking about how our tax systems intersect with individual privacy interests. I am looking forward to blogging about these issues—and maybe a good tax-and-soccer scandal from time to time.

This is a particularly good week to enter the blogging world as a state-tax guy. I woke up yesterday ready for a regular day of summer research and writing when this happened:

Now, I’m generally inclined to not give much attention to our current President’s tweets, but it isn’t often that state-tax issues get presidential attention, so it seemed like a good opportunity to dig into the tweet a bit more. (Plus it gave me the opportunity to use a terrible Trump pun right off the bat as a blogger.)

The Tweet

Although the President’s tweet is difficult to interpret (and that’s being gracious), it appears that he was primarily attempting to criticize The Washington Post as “fake news.” That came a day after the paper reported on the fact that several of his golf clubs had posted fake Time magazine covers on their walls. Trump made this criticism, though, through an oddly constructed reference to the paper’s relationship with Amazon and Amazon’s position with respect to “internet taxes,” which most likely is a reference to the collection of use tax on online sales. (The Washington Post and Amazon are not related, of course, except that Jeff Bezos—the founder, chairman, and CEO of Amazon—purchased the paper in 2013.)

Continue reading “President Trumpeting Marketplace Fairness?” →

Mortgage Interest Deduction

By: David J. Herzig

The Trump and Republican tax plans have circled around the idea of repealing the mortgage interest deduction.  Although I’m not convinced it will happen (see e.g., Treasury Secretary Mnuchin’s remarks).  The mere threat of the repeal has garnered a fair amount of attention.

For example, the other day this chart was making its rounds on twitter.

Screen Shot 2017-06-16 at 7.42.50 AM

I have not verified the methodology of the chart or the data.  I interpret that the chart examines (in absolute numbers) how many mortgages exist at $1,000,000. The implicit conclusion of the chart is that homeowners in states like D.C., Hawai’i, California and New York have the most at stake in retaining the deduction.

Why?

Because there seems to be evidence that the mortgage interest deduction contributes to housing inflation.  Back in 2011 the Senate held hearings on incentives for homeownership. [1]  It has been suggested that the elimination of the deduction will drop home prices between 2 and 13% with significant regional differences. [2]  So, if the mortgage interest deduction is eliminated, then the aforementioned states might have numerous problems, including a smaller property tax base.

What exactly is the Mortgage Interest Deduction?

Continue reading “Mortgage Interest Deduction” →

Prognosticating Estate Tax Repeal using State Interests

By: David Herzig

Last week Tax Foundation tweeted about the states that have either a state level estate or inheritance tax.

Screen Shot 2017-06-01 at 8.29.10 AM

The map and subsequent conversations I have had reinvigorated my interest in the prospect of an estate tax.  Briefly in this post, I wanted to say a couple things about the state level estate or inheritance tax, the map, and the effect of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRAA“) on the prospects of the elimination of federal estate tax.

I’ll readily admit that it has been a while since I did an estate tax return.  So, I needed some refreshing regarding the idiosyncrasies of the interaction between the state and federal taxes.  Some recent history is not only necessary but illustrative of the prospects of permanent federal estate tax repeal.

Brief History of Switch From Credit to Deduction

Prior to the enactment of EGTRAA, the federal estate tax provided an tax credit for an amount paid because of a state level estate tax.  The mechanics of credit was essentially a revenue sharing agreement for the tax collected between the federal government and the states – essentially, up to 16% of an estate’s value.  The credit applied whether or not the state had an independent estate tax.  This tax was known as a “pick-up” or “sponge” tax.

Continue reading “Prognosticating Estate Tax Repeal using State Interests” →

Macron and the Potential Future of Tax Leaks

By: Diane Ring

The French election for president—an event worthy of note in its own right (particularly on the heels of the Brexit vote)—generated a political, international relations, security and media firestorm due to a late-breaking data leak and hack. On Friday, the campaign of French centrist candidate Emmanuel Macron announced that it had been the subject of a major computer hack. At least 9GB of emails and personal and business documents from Macron’s campaign were posted to a document sharing site called Pastebin. Initial reports contended that the hack and leak were an effort to aid Macron’s far-right opponent Marine Le Pen, and may have been undertaken with Russian assistance. While Macron won the election, the potential fallout out from these leaks may have only just begun.

There’s an important tax dimension to the story, which may have been slightly overshadowed by Friday’s massive data dump. Two days before, on Wednesday, Le Pen hinted during a debate at possibility that Macron might have an offshore account in the Bahamas. Apparently, two hours before the debate, documents were anonymously posted on an internet forum that purported to include Macron’s signature and to show that he had a Bahamas bank account. During the debate, Macron responded that the claim was false and constituted “defamation.” On Thursday, Macron and his campaign outlined the spread of this offshore-account assertion on various sites and contended some were connected to “Russian interests.” On Friday, Macron lodged a complaint with the French prosecutor’s office regarding offshore account allegations made online.

Though the Friday hack and data dump have dominated the spotlight, the alleged tax leak is in fact part of the bigger and quite troubling picture of leaks in the modern cyber environment . . .

Continue reading “Macron and the Potential Future of Tax Leaks” →

About the ACLU’s [Update: FFRF’s] Challenge to the Promoting Free Speech and Religious Liberty EO

By Sam Brunson

Trump signed his Promoting Free Speech and Religious Liberty executive order earlier today. The EO was expected to order the IRS to stop enforcing the so-called Johnson Amendment against religious organizations. As Ben explained, by its language, it may have done significantly less—it appears to merely reaffirm the status quo for enforcement. Whatever its substantive effects, though, the existence of the order is no surprise, and, as has happened with any number of Trump’s previous EOs, the ACLU Freedom From Religion Foundation has already announced that it will challenge the EO in court. [Update: the ACLU looked at the EO and agreed with Ben that there was nothing there, and decided not to sue. The FFRF, otoh, decided to sue. So it’s the FFRF that will face these procedural hurdles before it has to face the substantive (or rather, lack of substance) ones.]

Leaving aside the question of whether this EO actually does anything substantive, it’s worth remembering that any judicial challenge to the executive order faces two significant hurdles: standing and administrative discretion.[fn1] It’s also possible that the Trump administration inadvertently made those hurdles easier to pass. Continue reading “About the ACLU’s [Update: FFRF’s] Challenge to the Promoting Free Speech and Religious Liberty EO” →

Trump’s Johnson Amendment Executive Order Does Not Say What He Said it Said

By Benjamin Leff

Trump issued an Executive Order (EO) today, the text of which was a complete shock (at least to naive little me). I had written a thousand-word blog post based on reporting before the release of the EO that Trump would direct the Internal Revenue Service to “exercise maximum enforcement discretion to alleviate the burden of the Johnson amendment which prohibits religious leaders from speaking about politics and candidate from the pulpit[.]” Then I watched the whole signing ceremony and Trump confirmed that he was planning to clearly open the door for religious leaders to communicate their views on candidates from the pulpits of their houses of worship.

The pre-prepared post argued that the IRS should issue some guidance explaining how it would enforce the Johnson Amendment in light of the EO, especially (1) whether it would create a “safe harbor” only for the speech of the organization, or also for the organization’s money and (2) whether it would extend the “safe harbor” to all 501(c)(3) organizations, or just houses of worship. The general consensus among advocates of changing the Johnson Amendment is that any liberalization of the rule should apply equally to all 501(c)(3) organizations and that it should permit speech but not spending.

Then, after a couple of hours, the White House released the actual text of the Executive Order. Unless I’m blind, what it says is literally nothing like what the Trump Administration said it would say, and even less like what Trump said it said when he signed it in the Rose Garden ceremony just a few hours ago. Continue reading “Trump’s Johnson Amendment Executive Order Does Not Say What He Said it Said” →

What is the Johnson Amendment?

By: David Herzig

As the world braces for the upcoming Executive Order from President Trump,

Screen Shot 2017-05-04 at 8.18.56 AM

I wanted to take a minute and describe the Johnson Amendment.  Later today, after the actual Executive Order is made public, Ben Leff will be writing up a more through post.

A couple of months ago President Donald Trump told the audience at the National Prayer Breakfast that he would “get rid of and totally destroy” the Johnson Amendment. Which raises the question: what is the Johnson Amendment. Because he brought it up at the National Prayer Breakfast, it also leads to the question of how does affects churches.

In 1954, without explanation, Lyndon Johnson proposed a small amendment to the tax law governing tax-exempt organizations: forbid them from endorsing or opposing candidates for office. One of the few consistent talking points during president-elect Donald Trump’s campaign was that this so-called “Johnson Amendment” should be repealed; since comprehensive tax reform is part of Trump’s plan for his first 100 days in office, the repeal may happen immediately. Continue reading “What is the Johnson Amendment?” →

We Hear What We Want to Hear

Shu-Yi Oei

I’ve been preoccupied by country music these past few days. For this, I blame my Tulane colleague, Sally Richardson, who recently wrote this post on Property Law Profs Blog. In it, Sally makes the following observation:

Last week, my good friend, brilliant colleague, and property law scholar extraordinaire, Jim Gordley (Tulane), told me that he had been on a road trip and listened to a good deal of country music.  In the course of listening to a series of country songs, Jim decided that country music was about two things:  love and breaking the law.  Being from the south and having listened to my fair share of country music, I have to admit that Jim is right.  Just listen to Friends in Low Places, Achy-Breaky Heart, Before He Cheats, Folsom Prison Blues, and Ol’ Red and you can see for yourself.  Sure, there are some other songs about dogs and beer, but those are really in the minority.  Most country music is about love and the law.

Sally also shares some really genius lyrics coined by Jim, which include:

I assign and convey to you
That unencumbered heart
With one restrictive covenant
That we shall never part,
And this condition subsequent
That if you let it break,
Then I in my discretion
May reenter and retake.

Reminds me a bit of the Conway Twitty tax case—both the Tax Court’s Ode and the IRS AOD in response!

Of course, as a matter of substance, I think Jim and Sally are dead wrong. Love and breaking the law…pshaw! Aside from some notable lines such as the one about Ilsa the acrobat falling in love with Horatio the Human Cannonball, country music is, in fact, all about economic security, lending and financing, foreclosure, bailouts, and tax.

Let me explain:

Caveat: I have an immense soft spot for country music. Some days I have half a mind to move to Nashville and try to earn a living as a country music songwriter. (I’m only very slightly kidding about that.) However, I do not actually know anything about country music. And obviously, country music has a bazillion subgenres is about lots of other things as well (as this article describes), including the painful, painful process of creating legal scholarship.

Continue reading “We Hear What We Want to Hear” →