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?” →

Call for Papers: Applied Feminism and Intersectionality: Examining Law through the Lens of Multiple Identities

By: Francine J. Lipman

The Center on Applied Feminism at the University of Baltimore School of Law seeks paper proposals for the Tenth Anniversary of the Feminist Legal Theory Conference. We hope you will join us for this exciting celebration on March 30-31, 2017.

Continue reading “Call for Papers: Applied Feminism and Intersectionality: Examining Law through the Lens of Multiple Identities” →

Faculty Hiring: University of Richmond School of Law

I’m passing along a hiring announcement from Jessica Erickson, who is chairing Faculty Appointments at the University of Richmond School of Law:

The University of Richmond School of Law seeks to fill two entry-level tenure-track positions for the 2017-2018 academic year, including one in tax law. Candidates should have outstanding academic credentials and show superb promise for top-notch scholarship and teaching. The University of Richmond, an equal opportunity employer, is committed to developing a diverse workforce and student body and to supporting an inclusive campus community. Applications from candidates who will contribute to these goals are strongly encouraged.

Inquiries and requests for additional information may be directed to Professor Jessica Erickson, Chair of Faculty Appointments, at lawfacultyapp@richmond.edu.

IRS Announces More 2016 LITC Grants

By: Francine Lipman

There has not been a great deal of good news lately about underserved communities or the IRS. But today America received some great news about nine new Low-Income Taxpayer Clinics (LITCs) in underserved areas across America. Five of the nine are in law schools. Continue reading “IRS Announces More 2016 LITC Grants” →

Flying, an Alpaca Farm and Baseball Cards – What do they have in common?

By: Diane Ring

In teaching Basic Income Tax, I have found that teaching students about the lines between engaging in a trade or business, profit seeking, and hobbies helps them become comfortable using facts in tax analysis and argument. It confirms for students that tax law is a type of law demanding factual and legal analysis – facts do matter and they are not self-evident. Thus, in anticipation of my next class, I have been collecting (thanks to Tax Notes and the BNA Daily Tax Report) new examples of taxpayer failures to convince a court that their activity was, in fact, for profit. It turns out the pool is quite large, but some personal favorites have risen to the top . . . Continue reading “Flying, an Alpaca Farm and Baseball Cards – What do they have in common?” →

Tax Analysts’ 2016 Student Writing Competition

By: Francine J. Lipman

Tax Analysts’ announces 2016 student writing competition winners as follows:

Continue reading “Tax Analysts’ 2016 Student Writing Competition” →

Tax Times @ ABA Section of Taxation

By Francine J. Lipman

Supervising Editor Professor of Law Linda Beale and her team of outstanding ABA – Tax Section editors, Anne Dunn and Isel Pizarro, and staff have put together an exceptional June 2016 issue of the digital Tax Times. Features include . . . Continue reading “Tax Times @ ABA Section of Taxation” →

Teaching Tax – At Home and Abroad

by Jennifer Bird-Pollan

I’ve just finished my sixth year of teaching tax at the University of Kentucky, which is longer than I’ve done any other professional task, but I still feel like I’m a beginner. I have started to develop strong classroom preferences (students may not use computers in my classes, I prefer lots of participation, and I prefer textbooks that elucidate concepts, rather than trying to hide the ball). But at the same time I have many more questions about the best way to do this work (what should I cover and leave out, given the time constraints? how can I encourage students to prepare seriously ahead of time, while still giving robust answers to student questions in class?). I am eager to hear from others, both my co-bloggers and visitors, what they think about these issues, and I plan to devote future blog posts to some of my thoughts about these questions. However, having just finished teaching “International Aspects of U.S. Tax Law” at the Vienna University of Economics and Business for the second time, I thought I’d focus here on some of the differences I have observed teaching U.S. income tax law abroad. Continue reading “Teaching Tax – At Home and Abroad” →

Teaching Tax: On Clickers and Laptops

By Sam Brunson

I’ve used clickers in class ever since I started teaching. In fact, thanks to Paul Caron’s tireless advocacy, I’ve known I was going to use clickers since before I entered academia.

And, like Paul, both I and my students[fn1] have found clickers tremendously helpful in the classroom. In my experience, they do three main things:

They force all students to actively engage with the class. It’s easy enough to sit back in class and passively absorb (or not) the content. Sure, whomever I call on has to actively engage, but I can only call on a small portion of my class on any given day. But clicker questions allow students to not only listen, but actually answer, at least a handful of questions.
They tell me how well the students grasp what I’m teaching. If most of the students get the right answer, I know my explanation and the discussion were helpful. If a significant portion get it wrong, I know that I need to go back and address it again (and, depending on the answers they choose, I may be able to figure out where I or they went wrong).
They tell my students how well they grasp what I’m teaching. If most of the students get the problem right, a student who gets it wrong knows that she may need to go back and review the topic. Or ask a question. Or do something else.

But I have a problem: Continue reading “Teaching Tax: On Clickers and Laptops” →

Did John Oliver just give away some CODI income on Last Week Tonight?

By: Shu-Yi Oei

So John Oliver just forgave $15 million of debt on his talk show.

See video @ around 17:15.

Specifically, Oliver apparently set up a debt-buying company (CARP), which bought $15 million worth of incurred medical debt of nearly 9,000 people for $60,000, less than half a cent on the dollar. And then he forgave the $15 million of debt on television. The Washington Post reports that “this is the largest one-time giveaway ever on television, beating out Oprah Winfrey’s famous “you get a car! You get a car!” episode, which cost that show $8 million.” (Smart talk show economics, to top Oprah’s giveaway while only paying $60,000 for the debt.)

Of course, because tax professors love talking about the tax consequences of Oprah’s free car giveaway, I wondered whether this $15 million debt forgiveness event was going to result in cancellation of indebtedness income to some of the debtors whose debt was forgiven. As tax people know, IRC Section 61(a)(12) provides that income from the cancellation of indebtedness is includible in gross income. But IRC Section 108 provides that there is no gross income in certain circumstances–for example, if the debtor is in Title 11 bankruptcy, or is insolvent, or if the debt is certain types of real property related indebtedness.

Would CARP have to send these folks a Form 1099-C? And would some of them then have CODI income due to the debt forgiveness?

Continue reading “Did John Oliver just give away some CODI income on Last Week Tonight?” →

US Tax Scholarship in Comparative Perspective

By: Shu-Yi Oei

Does tax scholarship look different across different countries? If so, how? And why? In a recently posted paper on SSRN, Wolfgang Schön of the Max Planck Institute for Tax Law and Public Finance looks at these questions, focusing on a comparison of tax law scholarship in the United States and Germany. The abstract is here. Briefly, the paper delineates key distinctive features of US and German tax scholarship and analyzes the similarities and differences between the two. As someone who teaches at a law school with a strong international, comparative and civil law tradition, I found many aspects of this paper interesting and informative, and agreed with many of its arguments. I won’t go into all of them here, but two stood out as especially thought provoking.

First, Schön points out that in US tax scholarship (and in US legal scholarship in general), the “internal” approach to scholarship—that is, doctrinal analyses and interpretations of law—has largely been replaced by an “external” approach that analyzes jurisprudence and the impact of legal rules from an “outsider” (i.e., policy or interdisciplinary) perspective. German academics, by contrast, are more likely to adhere to an internal approach that focuses on systematizing, understanding, and categorizing legal doctrine. This observation doesn’t strike me as very controversial. What was intriguing, however, was Schön’s claim that this external turn is due, in part, to the fact that US academics have less influence over the direction and what he calls the “production” of the actual law than their German counterparts. Specifically, he argues that US judges are less likely and less obliged to consult academic writing in coming to decisions than judges in Germany. Thus, many US legal academics gravitate towards the “external” approach, rather than simply being content to make a limited (and likely ignored) doctrinal contribution. This sounds right to me, at least on the US side. (Anecdotally, I have heard more than one person point out that one’s academic and theoretical freedom is very much tied to the fact that one’s theories are irrelevant to pretty much everybody, and that this is the very thing that allows legal scholars to really push the theoretical and policy boundaries.)

Continue reading “US Tax Scholarship in Comparative Perspective” →

Tax at Midlife

I am at the Association of Mid-Career Tax Professors (AMT) Annual Conference today and tomorrow, along with Surly co-bloggers Jennifer Bird-Pollan, Sam Brunson, and Stephanie Hoffer. The conference is hosted by Dennis Ventry and Darien Shanske at UC Davis. Sam, Stephanie, and I are on the organizing committee, along with Dennis and Brian Galle. The conference itself is, I think, Brian’s brainchild–thanks, Brian!

I’m presenting an early-stage piece called The Distributive Case against Offshore Tax Enforcement, which I hope to workshop more extensively over the fall and spring. Jennifer is presenting Taxes, Democracy, and Investment Treaties; Stephanie, Corporate Acquisitions and Integration; and Sam, Playthings of the Wealthy: RICs, Pease, and the AMT.

A question I keep asking myself is: What’s the mission of the AMT conference? Or more broadly, what should we be focusing on at this stage of our scholarly lives?

Back in the day when dinosaurs roamed the earth and I used to attend the still-extant Junior Tax Workshop, the goals were pretty clear: Continue reading “Tax at Midlife” →

A Hot News Week for Krispy Kreme

By: Diane Ring

The big news this week about Krispy Kreme is that they are going to be acquired for $1.35 billion. As reported in the WSJ last night, JAB Holding Co. (a European investment fund, which the WSJ noted holds an interesting mix of assets including Caribou Coffee, Jimmy Choo shoes, and Durex condoms) is about to add glazed donuts to its asset pool. But this was not the Krispy Kreme news of the week that caught my eye. I was fascinated instead to read that this week the Missouri Supreme Court ruled on Krispy Kreme’s request for a refund of sales tax it had remitted on sales of donuts and other related items from 2003 through 2005.

Krispy Kreme had collected sales tax at the 4% rate applicable to food sold that would be immediately consumed. In contrast, food sold at grocery stores generally bore only a 1% state sales tax. Essentially, as the media described it, Krispy Kreme argued that its donuts were like grocery store food, and thus should bear only the sales tax rate applicable to such food. I may not follow the healthiest of diets but even I do not think that donuts are the equivalent of broccoli from the produce aisle. What were they thinking? But then my tax brain kicked in. I immediately understood. . .

Continue reading “A Hot News Week for Krispy Kreme” →

EU State Aid Debate Lit Up the ABA Teaching Tax Session in DC

By: Diane Ring

As I blogged last week, the ABA Tax Section Teaching Tax Committee held a panel discussion Friday on the EU State Aid investigations on advance tax rulings. As I’ll discuss below, the panel was every bit as interesting as forecast. But first, a quick overview of what EU State Aid is all about:

EU State Aid Doctrine and Recent Controversy

Under Art. 107(1) of the Treaty on the Functioning of the European Union (as interpreted by the ECJ), if a member state provides state aid that distorts competition in the EU then the member must recover that aid from the benefiting entity to undo the distortive effects. Although this competition doctrine developed outside the tax context, it has previously been applied to tax benefits granted by a member state to a taxpayer. The European Commission oversees the investigation of state aid cases and issues the decisions.

Recently, though, application of the state aid doctrine to tax rulings issued by member states to multinationals has become a subject of tremendous controversy. In the past two years, the EC has been investigating tax rulings granted by member states to multinationals, including U.S. multinational taxpayers. The concern is that the multinationals receiving these rulings are not getting “mere” clarification of the law, but rather are securing a distinct advantage that creates distortion in the market. The U.S., along with various commenters, has expressed concern that these investigations might be disproportionately targeting U.S. businesses. Others have questioned whether the state aid rules are the most appropriate tool for combatting transfer pricing and/or double nontaxation situations that the EU finds problematic.

The Panel Discussion

During the discussion, it became apparent that there was a notable gap between the way many (but not all) in the U.S. view the European Commission’s recent state aid investigations involving U.S. taxpayers, and the EC’s vision of the role of the state aid doctrine in addressing potential harm caused by tax rulings granted to U.S. multinationals with very low effective tax rates. Thus, I was not surprised to hear these divergent positions characterized during the panel as “ships passing in the night”. What I did not anticipate was hearing the phrases “legal science fiction” (applied to certain suggested challenges to EC state aid decisions) or “a horror movie” (applied to the unfolding state aid investigations and decisions).

But the energy in the room was only part of the story. The panel provided very rich insights into the many complicated issues surrounding the current state aid investigations. I could not do them all justice here but thought I would highlight those that were mentioned by various panelists that really caught my attention:

Continue reading “EU State Aid Debate Lit Up the ABA Teaching Tax Session in DC” →

Tulane Law is Looking for a Visiting Tax Professor

Here’s an announcement from Tulane. We’re looking for a visiting tax professor to cover tax courses for either Fall 2016 or the 2016-17 academic year. If you have questions, please feel free to contact me. I’m happy to wax lyrical about Tulane Law, our tax and other programming at the Murphy Institute, and New Orleans.

Tulane Law School is currently accepting applications for a visiting tax professor for either the Fall of 2016 or for the entire 2016-2017 Academic Year. Visitors would be expected to teach basic Income Tax and other tax related courses. Applicants at any career stage are encouraged. To apply, please submit a CV along with a statement of interest and any supporting documentation. Applications and questions may be directed to Vice Dean Ronald J. Scalise Jr. at rscalise@tulane.edu. Tulane University is an equal opportunity/affirmative action employer committed to excellence through diversity. All eligible candidates are invited to apply.