One of the first articles I published as an academic was on the kiddie tax. It was a sleepy corner of the tax world; most of the academic literature on the kiddie tax came from the 1980s.[fn1] And, for its first three decades, the kiddie tax stayed almost exactly the same.[fn2] Then, in a little-noticed provision of the TCJA, Congress fundamentally changed the kiddie tax. In response, I addressed the kiddie tax a second time in a piece for Tax Notes entitled Meet the New “Kiddie Tax”: Simpler and Less Effective. [Paywall] It turns out that I underestimated the ways in which is was not only less effective, but actually dangerously counterproductive.
But first, a quick primer into what the kiddie tax was and what it has become. In 1986, Congress had become worried that wealthy taxpayers were shifting income-producing assets to their children so that they could lower their tax bills. The tax game would go something like this: wealthy dentist father gives (or, I suppose, sells for a nominal amount) his x-ray machines to his 7-year-old daughter. He then leases back the x-ray machines for, let’s say, $10,000 a year. In 1985, the top marginal tax rate was 50%. Assuming our dentist was in that tax bracket, he could deduct the $10,000 he paid to lease the x-ray machines. Meanwhile, assuming that his 7-year-old daughter didn’t have any additional income, she would have been in the 16% tax bracket. According to Rev. Proc. 84-79 (and ignoring any exemptions or deductions she might have), the daughter would pay taxes of $1,054 on the $10,000 of income. Meanwhile, Dad’s $10,000 deduction saved him $5,000 in taxes. By shifting passive income to his daughter, then, Dad saved almost $4,000.[fn3] (Note that it didn’t have to be dental equipment: it could be any income-producing property). Continue reading “The New Kiddie Tax Needs a Better Fix Pt. 1”→
On February 14, the Indiana University Maurer School of Law’s Tax Policy Colloquium hosted Larry Zelenak from Duke University School of Law. Larry presented his fun new paper, co-authored with his colleague Rich Schmalbeck, “The NCAA and the IRS: Life at the Intersection of College Sports and the Federal Income Tax.” Larry really hit this one out of the park, with a crowd that was nearly standing-room-only! Larry also hosted a terrific Valentine’s evening event, “Tax Sitcom Night,” featuring three classic sitcom episodes in which couples encounter the federal income tax together. I’ll discuss each of these briefly in this blog post.
Larry and Rich’s paper argues that the IRS has not done as much as Congress to cut back on “unreasonably generous tax treatment” of college athletics. The paper covers four principal topics, which Larry explained was a combination of Rich’s work on two issues and Larry’s on the other two. The four topics are:
The possible application of the unrelated business income tax to college sports;
the federal income tax treatment of athletic scholarships;
the recently changed tax treatment of charitable deductions for most of the cost of season tickets to college ball games; and
the new 21% excise tax of IRC § 4960 on compensation in excess of $1 million on certain employees of tax-exempt organizations.
Patrick W. Thomas Professor of the Practice, Notre Dame Law School
Following up on my post on the taxation of graduate student tuition waivers in the GOP tax bill, there have been a few new developments. (By the way, my fellow Hoosier from the opposite end of the state, Michael Austin, along with Sam Brunson, have a great post on the proposed repeal of section 117(d) as it affects university employees and their dependents.)
On NPR this morning, I heard that Chris Long, a defensive end for the Philadelphia Eagles, is donating his entire year’s salary to various charitable organizations that provide scholarships and support to underserved youth. (He already donated his salary from the first six games of the season to fund two seven-year scholarships at his alma mater in Charlottesville.)
That is unequivocally a good thing, and a generous thing. But it’s not without tax consequences.
When I think about charitable gifts, the first thing that comes to mind is their deductibility. But it turns out that the deduction for charitable contributions comes with a couple limitations. First, of course, is that only taxpayers who itemize get to deduct charitable contributions. Of course, given that this is a $1 million plus (more on that in a minute) donation, Long will definitely itemize. Continue reading “Chris Long, Philanthropist”→