Tag: IRS

Superman, Tax Evader?

By: Leandra Lederman, with thanks to my in-house comics expert, Nickolas Cole

Nick, who’s been a Superman fan since childhood, got me the Oct. 1961 issue of the Superman comic for Christmas. It’s got a story in it billed as “Superman Owes a Billion Dollars” in taxes! Here’s the splash panel:

The basic premise is that a new Revenue Agent “at the Internal Revenue Bureau in Metropolis,” Rupert Brand,* discovers “no record that Superman has ever paid taxes!” (In case you’re wondering, nope, the IRS was not called the “Internal Revenue Bureau” back then. In 1953, it changed its name from the “Bureau of Internal Revenue” to the “Internal Revenue Service.” Perhaps a clue that not to rely on any of the tax statements in the story!)

Brand figures out the quickest way to reach Superman about this apparent delinquency, and explains that even the President of the United States pays taxes (cf. these blog posts), and so must Superman!

Why does Superman owe tax? Well, the story explains that “each year, Superman captures countless criminals, collecting a fortune in reward money!” And not just that, “whenever he digs up buried treasure” [treasure trove, anyone?] “or squeezes coal into diamonds, he earns more untold millions! All that wealth is income!”

Continue reading “Superman, Tax Evader?” →

Wrap-Up of the 2020 Indiana/Leeds Summer Tax Workshop Series

Zoom Composite 2.0

By: Leandra Lederman

The 2020 Indiana/Leeds Summer Tax Workshop Series ended on Thursday, after 13 weeks of talks. It was terrific getting to spend the summer with so many tax enthusiasts–professors, practitioners, and students–from all over the world! Dr. Leopoldo Parada and I really enjoyed co-hosting this series, and we expect to continue it next summer!

We received speaker permission to share videos of most of the talks. The speaker’s scripted remarks and our introductions are included. Those videos can be found at this link.

The complete speaker list and papers presented were as follows:

May 21 Ruth Mason, University of Virginia The Transformation of International Tax
May 28 Stephen Daly, King’s College London Trust, Tax Administration and State Aid
June 4 Susan Morse, University of Texas Modern Custom in Tax
June 11 James Repetti, Boston College The Appropriate Roles for Equity and Efficiency in a Progressive Income Tax
June 18 Diane Ring & Shuyi Oei, Boston College Regulating in Pandemic: Evaluating Economic and Financial Policy Responses to the Coronavirus Crisis
June 25 Umut Turksen, Coventry University The Role of Human Factors in Tax Compliance and Countering Tax Crimes
July 2 Allison Christians, McGill University Accurately Counting Value in the International Tax System
July 9 Joshua Blank, University of California, Irvine Automated Legal Guidance
July 16 Michael Devereux, University of Oxford The OECD GloBE Proposal
July 23 Ana Paula Dourado, University of Lisbon The Concept of Digital Economy for Tax Purposes: a Reassessment
July 30 Ricardo García Antón, Tilburg University Enhancing the Group Interest in Transfer Pricing Analysis
Aug. 6 Steven Dean, New York University A Constitutional Moment in Cross-Border Taxation
Aug. 13 Monica Victor, University of Florida The Taxman’s Guide to the Galaxy: Allocating Taxing Rights in the Space-based Economy

Thank you again to all those who joined us, and we hope to see you next year! #IndianaLeedsSummerTax

The IRS’s new Tax Gap Map

TaxGapMap2019Yesterday, the IRS released new federal tax gap estimates, including a new Tax Gap Map. My first substantive post on this blog, back in May 2016 (linked here), was on the IRS’s tax gap study for the 2008-2010 tax years. The new report covers averages from tax years 2011-2013, i.e., picking up where the 2016 report left off.

The new estimates show an average estimated gross tax gap of $441 billion (compared to $458 billion on average for 2008-2010) and an estimated overall “voluntary compliance rate” of 83.6% of tax liability. The new Tax Gap Map shows that, according to the IRS’s estimates, the single largest contributor to the federal tax gap, in dollars, remains underreporting by individuals of business income, at an average of $110 billion per year.

The new report is not only careful to state that methodology changes from the previous tax gap study influence the gross and net tax gap figures, it redoes the 2008-2010 voluntary compliance rate calculation with its revised methodology, to provide an apples-to-apples comparison. The IRS reports that, under the current methodology, the voluntary compliance rate for those years would be 83.8% instead of the 81.7% reported—very similar to the 83.6% voluntary compliance rate the IRS estimates for 2011-2013.

One thing that’s obvious in reviewing the new report is that the format of the new Tax Gap Map is different. (Compare the 2019 version with the 2016 version.) One difference from the previous Tax Gap Map is that the new release does not color code or label “Actual Amounts,” “Updated Estimates,” and “No Estimates Available.” The new version instead adds a visual illustration of the relative sizes of estimated total tax liabilities, tax collections and tax gap amounts. The color coding in the “map” reflects those categories. Another difference is that the new version does not include excise taxes in the map. The previous Tax Gap Map included them, although the dollar amount of the underpayment gap for excise taxes was small and the IRS did not have estimates for nonfiling or underreporting of those taxes. Continue reading “The IRS’s new Tax Gap Map” →

The Trump Foundation and the Private Foundation Termination Tax

By Ellen P. Aprill

Michael Cohen’s accusations against President Trump in his statement before the House Committee on Oversight and Reform yesterday include arranging for a straw bidder to purchase a portrait of President Trump at an auction, using Trump Foundation funds to repay the fake bidder, and keeping the art for himself.  As part of the New York Attorney General’s  stipulation agreement with The Trump Foundation, the foundation must sell two other Trump portraits it currently owns. 

This stipulation agreement with the New York Attorney General has saved the Trump Foundation from a burdensome penalty tax in connection with the involuntary termination.  As had been widely reported at the end of last year, the New York Attorney General announced on December 18 that its investigation had found “a shocking pattern of illegality involving the Trump Foundation – including unlawful coordination with the Trump presidential campaign, repeated and willful self-dealing, and much more.”  Under the stipulation agreement, the Trump Foundation will dissolve and submit to the court a list of non-for-profit organizations to receive the Foundation’s remaining assets.  The Attorney General and the state court will need to approve the organizations that receive the Trump Foundation’s funds. Continue reading “The Trump Foundation and the Private Foundation Termination Tax” →

TIGTA’s Report on the Growing Gig Economy

By: Joseph C. Dugan, Trial Attorney, Department of Justice, Civil Division* 

On February 14, 2019, the Treasury Inspector General for Tax Administration (TIGTA) released a Valentine’s Day treat: a comprehensive report following a TIGTA audit concerning self-employment tax compliance by taxpayers in the emerging “gig economy.”

As Forbes noted last year, over one-third of American workers participate in the gig economy, doing freelance or part-time work to supplement their regular incomes or stringing together a series of “gigs” to displace traditional employment.  Popular gig services include ride-sharing giants Uber and Lyft; arts-and-crafts hub Etsy; food delivery services GrubHub and Postmates; and domestic support networks Care.com and TaskRabbit.  Even Amazon.com, the second-largest retailer in the world and a traditional employer to many thousands of workers in Seattle and at Amazon distribution centers worldwide, has gotten in on the gig economy with its Amazon Flex service.  And for those interested in more professional work experience to pad their resumes, Fiverr connects businesses with freelance copywriters, marketers, and graphic designers.  The power of smartphones and social media, coupled with flat wage growth in recent years, makes the digital side hustle appealing and, for many households, necessary.

From a tax revenue perspective, the gig economy is great:  it is creating billions of dollars of additional wealth and helping to replenish government coffers that the so-called Tax Cuts and Jobs Act (TCJA) has left a little emptier than usual.  From a tax compliance perspective, however, the gig economy presents new challenges.  Gig payers generally treat their workers as independent contractors, which means that the payers do not withhold income tax and do not pay the employer portion of FICA.  Instead, the contractor is required to remit quarterly estimated income tax payments to the IRS and to pay the regressive self-employment tax, which works out to 15.3% on the first $128,400 in net earnings during TY2018, and 2.9% to 3.8% on additional net earnings.  That self-employment tax applies even for low-income freelancers (i.e., it cannot be canceled out by the standard deduction or nonrefundable credits). Continue reading “TIGTA’s Report on the Growing Gig Economy” →

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

darts-2349444_1920By: 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” →

The IRS vs. the KKK

By Sam Brunson

My family’s summer vacation has already given me two posts (here and here), and it still promises a couple more, including this one.

As we drove across Alabama, we stopped by the Birmingham Civil Rights Institute. The BCRI is, in large part, a museum of the civil rights movement; it is not only interesting and informative, but it is deeply powerful and affecting to see how white Americans (mis)treated African Americans, what motivated civil rights activists, and what they faced in their activism.

I didn’t go in looking for taxes, but the Institute handed them to me anyway: Continue reading “The IRS vs. the KKK” →

Satan, Tea Parties, and the IRS

By Sam Brunson

Did you hear that the IRS granted a Satanic cult tax-exempt status in ten days?!? Meanwhile, Tea Party groups’ exemption applications languished for months or even years?!?

I know, it sounds pure conspiracy theory: the IRS loves Satan and hates conservatives. But it’s true! Or, at least, kind of! But it needs to be contextualized, because comparing the exemption application of Reason Alliance, Ltd. (the putative Satanic cult) and Tea Party groups is inapposite.[fn1] Continue reading “Satan, Tea Parties, and the IRS” →

Death, Taxes, and a Beach Read

51bm1qlqlzl-_sy344_bo1204203200_By: Leandra Lederman

Back in December 2011, I received a targeted mailing. It was the postcard below, which I received at the office. Tfullsizerender-1hus far, I haven’t found a Maurer colleague or tax friend who received this mailing. Some marketer apparently did his or her homework and identified me as someone with an interest in both tax and chick lit! I don’t get to read novels very often anymore, but this looked like exactly the kind of book I would enjoy. I even acted on the sticker on the reverse of the postcard, which said “A book makes a great holiday gift!” “Death, Taxes, and a French Manicure” was a great start to the Christmas list request I had recently received.

I received the book for Christmas and got hooked on the series. I’ve gotten through Book 10 so far. They’re a lot of fun. It never occurred to me to blog about them, though, until I read the first page of “Death, Taxes, and Cheap Sunglasses” while on a plane, and saw a link with tax issues I frequently write about. The opening paragraph reads:

“I slid my gun into my purse, grabbed my briefcase, and headed out to my car. Yep, tax season was in full swing once again, honest people scrambling to round up their receipts, hoping for a refund or at least to break even. As a taxpayer myself, I felt for them. But as far as tax cheats were concerned, I had no sympathy. The most recent annual report indicated that American individuals and corporations had underpaid their taxes by $450 billion. Not exactly chump change. That’s where I came in.”

I had just presented my latest tax compliance article, “Does Enforcement Crowd Out Voluntary Tax Compliance?” and here were tax gap figures showing up in a novel! “Death, Taxes, and Cheap Sunglasses” was published in 2015, when the annual federal tax gap was in fact estimated at $450 billion. (The updated tax gap figures, released in April 2016, and which I blogged about previously, are available here.)  Continue reading “Death, Taxes, and a Beach Read” →

2017 Mini-Symposium on “The Future of Tax Administration and Enforcement”

By: Leandra Lederman

On January 7, 2017, I had the pleasure of moderating a Discussion Group I organized for the Association of American Law Schools (AALS) annual meeting. The topic of the discussion was “The Future of Tax Administration and Enforcement.” The topic was prompted by the funding crisis in which the IRS finds itself and the challenges that poses for tax administration, which I wrote about in two articles published last year, “The IRS, Politics, and Income Inequality,” 150 Tax Notes 1329 (Mar. 14, 2016) and “IRS Reform: Politics As Usual?,” 7 Columbia Tax J. 36 (2016) (the latter of which was part of a symposium Kristin Hickman organized on tax administration).

The AALS Discussion Group included experts on tax law, administrative law, and cybersecurity. The discussion spanned topics that included IRS resource and task priority issues, administrative law aspects of tax administration, and cross-border tax administration concerns. In the coming weeks, Surly Subgroup will be hosting a mini-symposium featuring posts by members of the Discussion Group. The first substantive post will be this Friday, January 20, and is by Christopher Walker from The Ohio State University, Michael E. Moritz College of Law, who is a member of the group but was unable to attend the discussion itself due to a flight cancellation. The panel on January 7 was as follows:

Over the next few weeks, watch for more Mini-Symposium posts! They will be categorized under “2017 Mini-Symposium on Tax Enforcement and Administration.”

Can His Fans #SaveNelly?

By Sam Brunson

Photo by reeb0k2008. CC BY 2.0
Photo by reeb0k2008. CC BY 2.0

I listened to Nelly’s “Hot in Herre” last night. And I’m not alone—apparently, over the last couple days, Nelly’s Spotify streams have tripled as compared with the week before.

Why? Taxes, of course.

Apparently, Nelly has joined the storied ranks of popular entertainers who don’t pay their taxes. (See also Willie Nelson, Lauryn Hill, MC Hammer, and Jerry Lee Lewis, among others.[fn1])  Continue reading “Can His Fans #SaveNelly?” →

Trump Pays $2,500 Excise Tax: Is that Enough?

By: Philip Hackney

boy-666803_1280

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?” →

DC Circuit Seems to have Decided IRS Violated Constitution Before Trial in True the Vote Appeal.

By: Philip Hackney

graphics-882729_1280In 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.” →

Examination of Allegations Against Clinton Foundation Part II

By: Philip Hackney

elections-1527438_1280

A week ago I considered one of three allegations Rep. Marsha Blackburn made against the Bill, Hillary & Chelsea Clinton Foundation in a letter Blackburn sent to the IRS, FBI, and FTC. I found the first allegation stated nothing of significance to the IRS. I now look at the other two and find them significantly wanting as well. Recently, IRS Commissioner Koskinen sent a letter indicating the IRS would investigate these complaints. I conclude they fail to state any complaint actionable by the IRS.

The second and third Blackburn allegations seem to come from a book by Peter Schweizer called Clinton Cash. Both allegations suggest that Sec. Clinton provided large governmental benefits in exchange for donations to the Clinton Foundation and payments to Bill Clinton. Both of the claims, already made by Presidential candidate Donald Trump, regarding Laureate University and Uranium One have been rated False and Mostly False by Politifact. Thus, it is difficult to take these allegations seriously.

Nevertheless, there are two things I do in this post. First. I discuss the factual conclusions of others regarding whether there was a quid pro quo arrangement associated with the second and third allegations. Then, I look at how the tax law might treat such arrangements were they true. Continue reading “Examination of Allegations Against Clinton Foundation Part II” →