To follow up on Leandra’s post from two weeks ago: various news sources are reporting that the House Freedom Caucus is planning to make a “privileged resolution” sometime today to force a vote on impeaching Commissioner Koskinen. (Which makes sense: the Freedom Caucus’s Twitter feed seems to be all-impeach-Koskinen-all-the-time.) If they pass the resolution, they hope to force a vote on the impeachment within the next two days.
Stay tuned.
When I was in law school, I took a class in state and local taxation from Professor Richard Pomp. Although I don’t spend much of my professional life thinking about state taxes, I clearly remember one of the stories he told us.
A fur store in Manhattan, he told us, would ship empty boxes (or boxes filled with rocks or magazines) to an empty lot in New Jersey for customers. Why? Because nonresident purchasers didn’t have to pay New York sales tax if the purchase was shipped out of state.[fn1]
The New York Times provides more detail on the scheme: the furrier in question, Ben Thylan Furs Corporation, would allow customers to take the furs home without paying sales tax (and, with an average fur price of $8,700, the evasion of an 8.25% sales tax saved customers an average of $717.75 per fur). It would then ship a box filled with something else (or with nothing) to create a false record to back the out-of-state purchase. And, in 1985, Ben Thylan was indicted. Continue reading “Every Old Scam is New Again”
By: Philip Hackney
A couple of months ago, I wrote about the tax consequences of the Donald J. Trump Foundation paying $25,000 to the Pam Bondi campaign for attorney general in Florida in 2013. While most folks are focused on whether the payment was a bribe, I still see signs of a mismanaged charitable organization. I suggested that the political contribution could lead to the Foundation losing its exempt status and should require it to pay some excise taxes. I also said that there was enough questionable information for the IRS to open an audit of the Foundation. Well, last week, David Fahrenthold reported that Donald Trump recently paid $2,500 to the IRS as a tax for that impermissible political contribution made by the Foundation. This action leaves a lot of odd unanswered questions that I write about here.
Jeffrey McConney, the senior vice president and controller of the Foundation, told the Washington Post that Trump himself filed paperwork with the IRS alerting them to the improper political contribution from the Foundation, paid a 10% excise tax, and returned the $25,000. McConney states that the Foundation believes this should end the problem because the Foundation has done everything it has “been instructed to do”. While some have assumed that the IRS had communicated with the Foundation, it is not clear who did the instructing. Continue reading “Trump Pays $2,500 Excise Tax: Is that Enough?”
By: Diane Ring
A major question in the sharing economy is the status of workers – are they employees or independent contractors? Of course, no single answer would apply across the entire sector but the debate has been most prominent in ridesharing. At the center of this debate are two litigations against Uber in California and Massachusetts (in January 2015 the Massachusetts case was transferred to the Northern District of California). The suits, brought on behalf of Uber drivers in the two states, “alleged [among other claims] that Uber misclassified its drivers as independent contractors rather than employees.” Reclassification as an employee would entitle drivers to various protections and potential compensation under state labor law. Three years into the litigation, the plaintiffs agreed on a settlement with Uber, which would provide for monetary relief of $84 million (plus an additional $16 million contingent on an initial public offering). The bulk of this payment would be split into two funds, with approximately $5-6 million for Massachusetts drivers, and approximately $56-66.9 million for California drivers. Payouts to drivers would be based on miles driven under a formula. Continue reading “Court Says No to Uber Class Action Settlement: What does that mean for worker classification?”
Maybe you heard: Apple owes up to €13 billion in back taxes, plus interest, to Ireland. And maybe you also heard that Ireland doesn’t want Apple to pay. So what’s up?
First a caveat: I don’t have any particular expertise in European Union law, so I’m going off of news reports[fn1] and the European Commission’s press release. (As of when I’m writing this on Tuesday afternoon, the actual opinion isn’t up on the EC’s website. I’ll add a link when it’s available.)
In short: members of the EU can establish their own tax systems; the EU doesn’t have any authority over those systems. Over the last two years or so, though, the EC has been looking at special tax deals member countries have been giving to companies; where it finds that a country has provided special tax treatment to one particular company (and not granted similar tax treatment to other companies), it has held that the country provided “state aid” to that company. The EU treaty prohibits state aid and, when a member country provides such aid, the EC can require that country to recover the taxes it should have collected from the company in question. Though this Apple ruling is the most recent, last year the EC determined that Luxembourg and the Netherlands had used tax rulings to provide state aid to Fiat and Starbucks, and it is still looking into tax rulings provided by Luxembourg to McDonald’s and Amazon. Continue reading “Ireland, Apple, and State Aid”
Shu-Yi Oei
I recently read an interesting article by Prof. Benjamin van Rooij (UC Irvine), Weak Enforcement, Strong Deterrence: Dialogues with Chinese Lawyers about Tax Evasion and Compliance, 41 Law & Social Inquiry 288 (2016), available here.
The article studies a particular form of tax evasion practiced by some lawyers in China: The lawyer, although affiliated with a law firm, retains clients privately, accepts cash payments from such clients without giving the client a tax receipt, and does not report the case to the law firm. This behavior actually contains both a tax evasion and a business-driven purpose: it enables the lawyer to underreport income for tax purposes while also avoiding payment of a significant cut to the law firm. Unsurprisingly, the law prohibits these practices. The paper employs qualitative “semistructured” interviews with lawyers at large and medium-sized law firms using open-ended questions, in order to generate a nuanced picture of how enforcement, deterrence, and risk are perceived by these lawyers.
The findings are fascinating, and provide a unique perspective on legal ethics, tax compliance, and perceptions of enforcement and deterrence among lawyers in China. Continue reading “Tax Evasion and Risk Perceptions among Lawyers in China”
By: Leandra Lederman
123 tax law professors recently signed a letter (available here) urging House leaders “to oppose any resolution to impeach or censure John Koskinen, the Commissioner of Internal Revenue.” Full disclosure: I am among the signatories. The letter explains not only that “[w]e believe that nothing that has been reported provides any basis for impeachment or censure” but also that impeachment or censure will undermine tax administration:
“The IRS carries out a vitally important mission for our country. Respect for the IRS fosters the voluntary compliance that is essential for our revenue system to work.
Impeachment or censure will harm the country by weakening our revenue system. Impeachment or censure would disrupt the functioning of the IRS—which has had four Commissioners in as many years—leading to increased tax evasion, reduced revenue collection, and a higher national debt. Impeachment or censure would also set a dangerous precedent and deter talented people from working to improve the country’s struggling revenue system.”
This is an important message and I hope House leaders will listen.
Continue reading “Tax Professor Letter Opposing Impeachment or Censure of IRS Commissioner Koskinen”
By: David J. Herzig
Everyone knows by now the dire financial problems facing Puerto Rico. (My co-blogger Shu-Yi Oei wrote about the default in Surly here.) In order to generate liquidity to pay debt and run government operations, Puerto Rico began to look to the deepest pockets for help. If you are looking for a deep pocket, look no further than Walmart. The question facing Puerto Rico was how to get more money out of Walmart without actually targeting the corporation (that would be unconstitutional.)
The territory, instead, tinkered with an old law to created a tax hikes which on the face seemed neutral. However, the law, according to Walmart, targeted primarily the large retail corporation. The after-tax effect of the corporate alternative minimum tax change was to raise Walmart’s Puerto Rican tax liability to over 90% of its income.
How did we get here? Last year, Puerto Rico enacted Act 72-2015 (Act 72) into law. The key component of the act was an increase in the Tangible Property Component (TPC) of the corporate AMT. According to prior reporting, “The TPC piece of the AMT imposes a tax on the value of property transferred to an entity doing business in Puerto Rico from a related party outside of Puerto Rico.”
Then last December, Walmart filed suit styled, Wal-Mart Puerto Rico Inc. v. Zaragoza-Gomez, 15-cv-3018, U.S. District Court, District of Puerto Rico (San Juan) challenging Act 72. According to Walmart, the tax was unconstitutional violating the commerce clause. Moreover, the new tax raised the company’s estimated income tax to “an astonishing and unsustainable 91.5% of its net income.”
In March of 2016, the District Court agreed with Walmart and in a 109 page opinion stated, “Puerto Rico’s AMT, on its face, clearly discriminates against interstate commerce.” Part of the story told by bond holders, is that in the course of the trial, it came to light the government of Puerto Rico might have been misleading their bond holders and this law was a kind of hail-mary. Per the UBS report, “In the course of the trial, senior officials of the García administration were obliged to provide sworn testimony. Judge Fusté’s subsequent written opinion provided information that had been either knowingly or inadvertently withheld from investors by the Government Development Bank.” So, yes, the tax was targeted at Walmart. Also, the government of Puerto Rico was also not disclosing to its bond holders the true economic conditions.
Late last week, the 1st Circuit agreed with the District Court. The 1st Circuit concluded, “As to the merits of the Commerce Clause challenge, the AMT is a facially discriminatory statute that does not meet the heightened level of scrutiny required to survive under the dormant Commerce Clause.”
Professor Linda Beale and her team of dedicated editors and staff have once again produced an outstanding issue of ABA Section of Taxation Times.
This issue of TT features a farewell from the exceptional outgoing ABA/Tax Section Chair , George C. Howell, III, Hunton & Williams LLP, Richmond, VA and a welcome from the enthusiastic and energetic incoming ABA/Tax Section Chair William H. Caudill, Norton Rose Fulbright LLP, Houston TX. I personally appreciate the focus and support both of these gentlemen have given, are giving, and will continue to give to the Tax Section’s pro bono and public service efforts as well as their commitment to diversity and inclusion. Thank you ABA – Tax Section for reaching out for a greater good!
Next, Professors Joe Bankman 
and James E. Maule 
engage in a thoughtful point-counterpoint discussion on the important issue of tax filing simplification.
The brilliant Jasper L. Cummings, Jr. in “Spending Without Appropriations: Who’s to Complain?” discusses the recent Affordable Care Act (ACA) decision of United States House of Representatives v. Burwell, 2016 U.S. Dist. LEXIS 62646 (D. D.C. 2016). In the decision, Judge Rosemary M. Collyer ruled that DHHS cannot pay insurance companies the costs they incur in reducing the “cost sharing” for some ACA insurance policy holders. The court enjoined further payments to the insurance companies for those costs, but stayed the injunction pending appeal, which surely will occur. In other words, the House of Representatives won.
On a lighter note, here is a new tax tune, titled OVDP (Offshore Voluntary Disclosure Program), by Robert S. Steinberg of Palmetto Bay, FL, sung to the tune of “Tonight,” by Leonard Bernstein & Stephen Sondheim, from West Side Story. 
Finally, Tax Law Professors take note, 
SEPTEMBER 6, 2016, the 16th Annual Law Student Tax Challenge begins so spread the word to your students near and far!
And there are even more treasures in the August issue of the Tax Times, but I will let you dig up those pearls of wisdom yourself! There is something for every tax professional in the ABA-TT.
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.
By: David J. Herzig
Politico reported yesterday that “Isaac Lanier Avant, chief of staff to Rep. Bennie Thompson (D-Miss.) and Democratic staff director for the Homeland Security Committee, allegedly did not file returns for the 2009 to 2013 tax years.”
According to the Department of Justice Press Release, Mr. Avant has been a staff member of the U.S. House of Representatives since 2002. In 2005, he filed a form with “his employer that falsely claimed he was exempt from federal income taxes. Avant did not have any federal tax withheld from his paycheck until the Internal Revenue Service (IRS) mandated that his employer begin withholding in January 2013.”
This seemingly innocent story might get more torrid. For starters, missing from the press release by Justice is that, as Richard Rubin pointed out to me, Mr. Avant’s employer was Congress. Do you hear the can of worms opening? I mean, who at payroll in Congress is green-lighting the stopping of withholding? What did his form look like? Did he make up an official and name it – W-NONE? How many other staffer’s did this? How did he never get audited? According the the press release and the story, Mr. Avant did not file tax returns for 5 years; I guess a matching program would not catch anything since he had no withholding. But, one would think Congress would at least ensure that every employee has filed a tax return.
Not sure which awesome tax protester argument he is going with. Personally, I hope it is that he is a sovereign citizen. It would be great if the Democratic staff director of Homeland Security thought the U.S. laws did not apply to him. I guess we will have to wait for the actual complaint. For those interested, the IRS has outlined numerous frivolous tax arguments.
[UPDATE 8/24/16 at 8:41 pm: It appears that a claim of Sovereign Citizen might really be in play. According to the Panolian, a local Batesville, Mississippi newspaper, Mr. Avant is the son of Vernice Black Avant and the late Robert Allen Avant Sr. In 2011, according to the Panolian, Mr. Avant’s mother, who is also a court clerk, filed an “11-page ‘Affidavit of Truth'” “declaring that she is a “freeborn Sovereign” are meant to distinguish her as an individual, distinct from a corporation.” “The affidavit cites participation in the use of bank accounts, Social Security numbers, driver’s licenses, vehicle license plates and tax returns as ‘under duress.'”]
As part of its summer workshop series, Ohio State’s Moritz College of Law invites junior scholars to present works-in-progress. This summer, we had the pleasure of hosting both Daniel Hemel, an assistant professor at the University of Chicago Law School and Goldburn Maynard, an assistant professor at the University of Louisville Brandeis School of Law. Both junior tax scholars are challenging the ways in which tax policy makers think about equity in the context of distributive justice.
Maynard, whose work-in-progress finds its intellectual genesis in Murphy & Nagel’s The Myth of Ownership and Reuven Avi-Yonah’s “The Three Goals of Taxation,” focused on the prominence of everyday libertarianism in tax litigation and policy making. Tax’s redistributive function, he asserted, should be tethered to equality rather than to economic liberty or to efficiency. While acknowledging that “equality,” could mean different things to different people, Maynard concentrated on equality of income or wealth, rather than on more difficult-to-quantify forms, such as equality of opportunity. Although he did not explicitly raise it, Maynard seems also to be contemplating an eventual challenge to the sufficiency of vertical equity as a measuring stick in tax policy. At this point, though, his goal is primarily to widen the discussion.
Hemel, too, is thinking of distributive justice in broader terms. Using the home mortgage interest deduction as a case study, Hemel and Kyle Rozema, a postdoctoral fellow at the Northwestern-Pritzker School of Law, argue that labeling a tax provision as “progressive” or “regressive” should not be done in isolation. Instead, scholars and policy makers should look both at the operation of a provision within the context of the Code and at the reallocation of revenue generated by a provision’s amendment or repeal.
For example, households in the top 1% of the income distribution tend to benefit more from the mortgage interest deduction than households in the bottom 99%. On the other hand, the presence of the deduction in the Code counter-intuitively causes the top 1% to bear a larger share of the total tax burden than they otherwise would. In other words, Hemel and Rozema assert that while the deduction looks regressive when viewed in isolation, it actually increases progressivity overall in the Code. (This, of course, is a function of what percentage of a taxpayer’s income is devoted to mortgage interest in a skewed income distribution, so the result might be different if Hemel and Rozema dug deeper into the distribution rather than focusing on the top.) Regardless, Hemel and Rozema seem to be proving Maynard’s implicit point that traditionally “equitable” policies do not necessarily promote equality of income or wealth.
Perhaps more interesting is Hemel and Rozema’s argument that the progressivity or regressivity of an amendment to the Code cannot be determined without also considering Congress’s use of the resulting revenue. For example, if Congress were to repeal the mortgage interest deduction and write equal-sized checks to each household, the distributional consequences would be more progressive than if additional revenue were used to reduce all taxpayers’ liabilities proportionately. Here, Hemel and Rozema’s argument brings to mind earlier work by Lily Batchelder and others on the use of refundable credits versus non-refundable credits or deductions. And notably, like Maynard’s work in progress, Hemel and Rozema’s work is pushing policy makers to look deeper into equity, questioning stock assumptions and asking how the concept can be made meaningful in practice and not just on paper.
That the traditional tax policy cannon (if there is such a thing) would breed restiveness in junior scholars at a time of political and class unrest should come as no surprise. Maynard’s assertion that equality has separate meaning and import, and Hemel’s and Rozema’s argument that tax analysis is only half of the picture push tax policy scholarship in a direction that is more pragmatic, building a bridge of sorts between what students of tax policy learn and what is happening in government. It will be interesting to see what the future holds both for these young scholars and for the world of tax policy more generally.
A week and a half ago, Leandra posted some of the history and context of the Beatle’s “Taxman.” It got me thinking about something I’ve been wondering about for a while: what songs are out there that talk about tax?[fn1]
I’ve found a couple places that have addressed the question, but they’re all deficient. “Sound Opinions” did a show on the question this last April, but, in spite of calling it the “Tax Day Special,” they included songs about money broadly, not taxes specifically.
VH1 got the taxes (mostly) right (“Take the Money and Run” is a stretch for my purposes), but limited themselves to 10 songs, and all of the songs are rock songs. (Still, I’m going to steal several of theirs for this.) Continue reading “Tax Canon, Music Edition”
By: Philip Hackney
I live in Baton Rouge, LA where I teach at LSU Law Center. Baton Rouge and surrounding communities are currently experiencing unprecedented flooding. The devastation stretches from around the Louisiana-Mississippi border all the way over to Lafayette -maybe 100 miles across. This story does a nice job explaining the weather phenomenon that caused this massive flood event. Neighborhoods that have never flooded before in our recorded history are under 4 -6 ft. of water, and some higher than that. Almost the entirety of certain cities are submerged. The last data I had for my area is that 20,000 were displaced and 10,000 in shelters. I expect that number to go up over the week. Even though it has stopped raining, the flood waters cannot drain because the rivers are too high and cannot take runnoff from tributaries. I am fortunate to live in a house that has been spared from this devastating water. The picture on the left is of Gonzales City Hall underwater.
This is just a quick post on some resources for navigating the legal benefits of a disaster. I highly recommend the tremendous article by my fellow blogger Francine Lipman entitled Anatomy of a Disaster Under the Internal Revenue Code. It discusses all of the income tax impacts of various benefits that you might apply for and receive. In many cases the Code excludes amounts you receive in disasters. The two most significant probably are gifts you might receive from family and friends. Those are excludable under 102 of the Code. More significantly, benefits from the government will often be excluded as qualified disaster relief payments under section 139 of the Code. The fact that President Obama declared this a disaster allows this provision to kick in for the affected areas. Continue reading “LA Flood Disaster: Links on Government Aid & Where to Donate”
By: Philip Hackney
In 2014, a District Court dismissed (based on 12(b)(6) and 12(b)(1) motions) the complaint of a number of conservative organizations who alleged that the IRS “targeted” them by subjecting them to greater scrutiny in their applications for tax exemption. The lead organization, True the Vote, sought 501(c)(3) charitable organization status; the others primarily sought 501(c)(4) social welfare organization status. The world became aware of this targeting controversy in May 2013 when Lois Lerner, the head of the Exempt Organizations division of the IRS apologized to the Tea Party and other conservative groups for how the IRS treated their applications. To this day Taxprof Blog continues the IRS Scandal post over three years later dedicated at least in part to this controversy.
The primary complaints were the second and fifth claims: (2) the IRS violated the organizations First Amendment rights to freedom of speech, and (5) the IRS violated the Administrative Procedures Act. The District Court concluded that because the IRS had granted exempt status to these organizations, the complaints were moot. True the Vote appealed this dismissal to the DC Circuit Court of Appeals.
Last week the Circuit Court breathed new life into claims 2 and 5. Though the Court found that some of the complaints were moot (including Bivens complaints against IRS employees and a claim of violation of 6103 disclosure rules), it allowed claims 2 and 5 forward because it found that the IRS had not voluntarily ceased its unlawful actions.
In reading the opinion, I find astonishing that the Circuit Court appears to have already concluded, without trial, that the IRS acted unconstitutionally. I recognize that for a 12(b)(1) motion the court is to assume the complaint true, but the court appears to have done much more than make assumptions. I focus on this issue. Continue reading “DC Circuit Seems to have Decided IRS Violated Constitution Before Trial in True the Vote Appeal.”
The Surly Subgroup 