IRS ‘Targeted’ Liberal Organizations and After All These Years TIGTA is Still Wrong

By: Philip Hackney

The Treasury Inspector General for Tax Administration (TIGTA) just issued a new report four years and five months after rebuking the IRS for using “inappropriate” criteria to select applications for tax exempt status for scrutiny. In the first report, TIGTA rebuked the IRS for pulling the applications of conservative leaning organizations for greater scrutiny.

This time it considers the fact that the IRS over a period of 10 years used liberal leaning names such as ACORN, Emerge, and Progressive as criteria for pulling applications for greater scrutiny. This resulted in the IRS applying greater scrutiny to these organizations. Some might say the IRS targeted these organizations. Those organizations appear to have faced long wait times as well, and sometimes some questions of limited merit.

I write this piece to make two points: (1) had this information been in the initial report, I don’t think we would have had the “scandal” that shook the IRS and the political world of the time; and (2) the TIGTA report built its primary claim on a garbled faux legal postulate. The original report did terrible damage to the IRS and individuals by failing on both of these fronts. Continue reading “IRS ‘Targeted’ Liberal Organizations and After All These Years TIGTA is Still Wrong” →

The Real IRS Scandal

By: Leandra Lederman

It is well known that the IRS was accused in 2013 of targeting Tea Party and other conservative groups for delays in their 501(c)(4) applications for tax-exempt status. TIGTA’s May 2013 report (and Lois Lerner’s statements at an ABA Tax Section meeting a few days earlier) launched the controversy, which harmed the IRS and a number of its employees. (Cf. my earlier Surly post, “Don’t Impeach IRS Commissioner Koskinen.”)

In 2016, I published an article, “IRS Reform: Politics As Usual?,” analyzing the facts underlying these accusations and the law applicable to the IRS’s determination of tax-exempt status. I argued that the facts showed that the IRS was not motivated by partisan politics. Rather, what happened was that IRS employees included a keyword approach in its efforts to triage the large volume of applications for tax-exempt status it was receiving. Its “Be On the Lookout” (BOLO) list of words was designed to help it identify for further scrutiny those organizations that were engaged in more political activity than was permitted under section 501(c)(4), which, generally speaking gants exempt status to organizations “for the promotion of social welfare.” As I describe in that article, the IRS tried but failed to get ahead of a brewing political controversy on this. There was evidence even in the 2010 IRS PowerPoint highlighting types of groups applying for a determination of exempt status under 501(c)(4) that the IRS had both Tea Party and progressive political organizations on its radar. But the news was full of stories of the IRS supposedly targeting conservative tax-exempt organizations.

The Washington Post has reported in an article titled Liberal groups got IRS scrutiny, too, inspector general suggests, that TIGTA will be issuing a new report finding that the IRS also used keywords to try to identify progressive groups engaging in too much political activity to qualify for the tax exemption under 501(c)(4) they were applying Continue reading “The Real IRS Scandal” →

Appealing Chamber of Commerce v. IRS?

By Sam Brunson

Last Friday the District Court for the Western District of Texas issued a decision in Chamber of Commerce v. IRS. In its decision, the court held that the IRS violated the Administrative Procedure Act in issuing Treas. Reg. § 1.7874-8T. The most interesting part of the case was that the Chamber got past the standing and Anti-Injunction Act hurdles; the substantive decision was that Congress didn’t eliminate the notice-and-comment requirement by expressly permitting time-limited temporary regulations. For a great substantive discussion of the case, take a look at Andy Grewal’s post on Notice & Comment.

The question on everybody’s mind now is, will the government appeal? On the one hand, as Andy explains, the court’s opinion is fairly summary; it may be right that the Anti-Injunction Act doesn’t bar the suit here, but it hasn’t done the work to make the holding bullet-proof.

On the other hand, the IRS takes a risk appealing to the Fifth Circuit. I’m not a close court-watcher, but I’ve heard talk that the Fifth Circuit is less than totally favorable to the IRS. Continue reading “Appealing Chamber of Commerce v. IRS?” →

Rory Van Loo Presents “Making Innovation More Competitive: The Case of FinTech” at Boston College Law School

Shu Yi Oei

Boston College Law School’s Regulation and Markets workshop series continues today. Professor Rory Van Loo (BU Law) will present “Making Innovation More Competitive: The Case of FinTech.”

Abstract:

This Article examines recent financial technology (“fintech”) developments to diagnose the federal regulatory architecture surrounding innovation. Startups offer artificially intelligent financial assistants, touchless payments, and other potentially game-changing products for individuals. Yet unlike more lightly regulated industries such as retail goods, in consumer finance barriers to entry have insulated the largest businesses from competition. Regulatory insulation helps explain why too big to fail banks have become bigger, U.S. innovation has lagged that of foreign countries, and consumers pay higher prices.

Taking an institutional lens to this problem reveals an overlooked shortcoming in financial regulation: The organizational design of the administrative agencies responsible for enforcing competition. The current framework was built in the wake of financial instability and consumer protection crises, and its organizational design reflects those priorities. Competition enforcement for consumer finance is spread across five entities, including the Department of Justice and the Federal Reserve, each of which focuses on other industries or missions. In particular, agencies whose primary goal is to prevent banks from failing have insufficient incentive to ensure those same banks face competition. As a result, no regulator is optimally structured either to develop licenses suitable for startups or to address banks’ anticompetitive conduct.

The stakes of getting innovation competition right are increasing. Effective competition enforcement could enable new entrants to reduce the size of the largest banks—providing a partial market solution to taxpayer bailouts and to a major economic stability threat. It would also force U.S. banks to prepare for an increasingly borderless financial world in which virtual currencies bypass regulators. Inept competition enforcement could bring opposite results. As Google, Microsoft, and Facebook have shown, technology firms tend to capture higher market shares than those in other industries, often well over 60 percent. If a large bank were to attain similar shares, it could destabilize the financial system. Reallocating competition authority to a motivated financial agency would better position regulators to safeguard the future of finance.

If you’re an academic in the Boston area, please feel free to join us. You can send me email for more information.

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?” →

Analysis of the ABA Tax Section’s Reduced Travel Support for Academics

CaptureAus By: Leandra Lederman

A hot topic among professors at the recent ABA Tax Section meeting in Austin was the reduction in travel support for academics scheduled to take effect with the upcoming meeting in San Diego. As Prof. Bryan Camp wrote on TaxProf blog, The background is that, for years, and through the most recent meeting, full-time professors who have a leadership role in the section (Chair or Vice-Chair of a committee, or higher positions) have received a travel subsidy. The subsidy consists of $100/night toward actual hotel expenses, reimbursement of coach airfare (up to a mileage-based cap*), and $10 towards local transportation. Full-time professors speaking on panels who are not in leadership have also long received a travel subsidy, which I believe is the same as for professors in leadership, except without the $100/night towards hotel room cost. The Tax Section recently decided to eliminate the subsidy for academics, except for those who meet the Section’s definition of “young lawyer,” which has been reported as under age 40 or less than 5 years in practice. (I’m not sure how the “less than 5 years in practice” works, but I imagine it refers to something like bar membership, so that someone like me, who practiced for less than 5 years before entering academia in 1994, would not qualify.)

What’s so sad about this decision is that Tax Section meeting attendance by academics is likely to drop off markedly, although academics add a lot to the Section, as discussed further below. The Teaching Taxation Committee will suffer significantly, and so will other committees with many professors in leadership. It will also be harder to get faculty to speak on panels. There are several factors that will drive this effect:

Law school budgets, and notably travel budgets, have been cut significantly in the wake of student application declines nationally that began in about 2011. My school continues to be generous, but I have heard from so many professors I have lost count about reduced, often dramatically reduced, annual travel budgets for faculty–budgets that may not support more than one or two conferences a year, for example. Continue reading “Analysis of the ABA Tax Section’s Reduced Travel Support for Academics” →

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” →

Saule Omarova (Cornell) presents “Private Wealth and Public Goods: A Case for a National Investment Authority” At Boston College Law School

Shu Yi Oei

UPDATE 9/19/17: I blogged more about Omarova & Hockett’s National Investment Authority suggestion over on Taxprof Blog. You can read the post here.

Today, Boston College Law School welcomes Professor Saule Omarova (Cornell) as the first presenter in our inaugural Regulation and Markets Workshop Series. The paper (with Robert Hockett, also of Cornell) is entitled “Private Wealth and Public Goods: A Case for a National Investment Authority.” It’s available on SSRN.

Here’s the abstract:

The American Presidential election of 2016 was won under the rhetorical banner of returning America to its past productive glory. Any such undertaking presents an extraordinary challenge, demanding a correspondingly extraordinary institutional response. This Article proposes precisely such a response. It designs and advocates a new public instrumentality – a National Investment Authority (“NIA”) – charged with the critical task of devising and implementing a comprehensive long-term development strategy for the United States.

Patterned in part after the New Deal-era Reconstruction Finance Corporation, in part after modern sovereign wealth funds, and in part after private equity and venture capital firms, the NIA is an inherently hybrid, public-private entity that combines the unique strengths of public instrumentalities – their vast scale, lengthy investment horizons, and explicit backing by the public’s full faith and credit – with the micro-informational advantages of private market actors. By creatively adapting familiar tools of financial and legal engineering, the NIA overcomes obstacles that ordinarily impede or discourage private investment in critically necessary and even transformative public infrastructure goods. By channeling presently speculative private capital back into the real-economy, moreover, the NIA plays an important role in enhancing the resilience and stability of the U.S. and global financial systems.

The Article makes original contributions not only to contemporary policy debates over how to revive America’s productive prowess and bring its financial system back into the service of the real economy, but also to current theoretical understandings of “public goods” and how to provide them. It offers a more complete and coherent account of such goods as solutions to collective action problems that pervade decentralized markets, hence as goods that can be supplied only through exercises of collective agency. The NIA proposal advanced in the Article operationalizes this theoretical insight by elaborating a specific institutional form that such collective agency can take.

The paper is really interesting and I have many swirling thoughts. I’ll say more after the workshop.

Boredom and Taxes

I’ve been known to occasionally get bored at work, notwithstanding my job being the best job in the world and taxes being one of the most interesting topics in the world. For better or worse, when I’m bored, I can always turn to the internet for entertainment. Of course, as we know, that wasn’t always the case.

I’ve been looking at nineteenth-century tax assessment lists for a project I’m working on. The lists are fairly sterile, mostly a series of names, with the amount of income and various types of property that each individual had. Copying the various assessments to the formal assessment book must have been relatively mind-numbing work, especially for assistant assessors who were grossly underpaid.[fn1] Also, they were overworked:

Perhaps the most burdensome administrative tasks fell on the assessors, the workhorses of the collection staff. Their offices were kept open at all hours. They were required to issue a summons after notice to make returns had been issued, to hear appeals, examine taxable property, accept income tax returns, and audit returns for correctness.[fn2]

Continue reading “Boredom and Taxes” →

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”” →

Winning by Losing? Getting the Supreme Court to review Quill.

By Adam Thimmesch

The Supreme Court of South Dakota heard sdsc_1_small oral arguments in South Dakota v. Wayfair, Inc. earlier this week. That case involves a challenge to a South Dakota statute that requires vendors to collect the state’s use tax based solely on their economic connections with the state—a requirement that seems to directly contradict the rule embraced by the Supreme Court in Quill Corporation v. North Dakota. What was unusual about the case is that the state argued that it should lose. You don’t run into that every day.

Continue reading “Winning by Losing? Getting the Supreme Court to review Quill.” →

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” →

Something Old, Something New: Two Workshop Series @ Boston College Law School this Fall

Shu Yi Oei

I’m happy to announce that we have a couple of workshop series happening at BC Law School this academic year. I’m really quite excited about these. Because what’s life without a workshop?

Tax Policy Workshops & Roundtable…

Boston College Law School has run a Tax Policy Workshop Series since 2007. This fall, we continue in that tradition, with speakers Daniel Hemel (Chicago), Ruth Mason (UVA), Zachary Liscow (Yale), and Lily Batchelder (NYU) presenting papers.

BC Law and Tulane Law are also hosting a joint BC-Tulane Tax Roundtable on March 23, 2018. More info about that coming soon.

…and a New Regulation and Markets Workshop Series!

In addition, here’s something a bit fun: Some BC Law colleagues and I have started a new workshop series, focusing on Regulation, Markets, and Business. This multidisciplinary workshop series focuses on the study of regulatory approaches to markets and business. It investigates how such economic regulation should be designed in order to balance the interests of various constituencies. It also explores how traditional approaches to regulation compare, contrast, and intersect with emerging methodologies.

We’ll feature presentations by invited legal scholars of their works-in-progress. The hope is to create opportunities for scholars working on issues of economic regulation to discuss and present their research in a forum of academics working in related intellectual spaces. The workshop is offered to Boston College JD and LLM students as a 1-credit seminar.

Here’s the 2017-18 slate:

FALL 2017

September 12, 2017 – Saule Omarova (Cornell): “Private Wealth and Public Goods: A Case for a National Investment Authority”

September 26, 2017 – Rory Van Loo (Boston University): “Consumer Law as Tax Alternative”

Tuesday, October 17, 2017 – William Birdthistle (Chicago-Kent): “Free Funds: Retirement Saving as Public Infrastructure”

Tuesday, November 14, 2017 – Cary Martin Shelby (DePaul): “The Role of Competition in the Regulation of Investment Funds”

Tuesday, November 28, 2017, 12:15 pm – Lily Batchelder (NYU), co-sponsored with Tax Policy Workshop: “The Shaky Case for a Business Cash-Flow Tax”

Continue reading “Something Old, Something New: Two Workshop Series @ Boston College Law School this Fall” →

Slurpees and the Cook County Sweetened Beverage Tax

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” →