Law Commons^™

Does Enforcement Reduce Voluntary Tax Compliance?, Leandra Lederman

Articles by Maurer Faculty

Governments generally use enforcement methods, such as audits and the imposition of penalties, to deter noncompliance with tax laws. Although this approach is consistent with most economic modeling of tax compliance, some scholars caution that enforcement may backfire, “crowding out” taxpayers’ intrinsic motivations to pay taxes to such an extent that they reduce their tax payments. This article analyzes the existing evidence to determine if this occurs. In fact, field studies suggest that enforcement tools, such as audits, are effective deterrents, generally greatly increasing tax collections. A few recent studies have found that audits have a negative effect on the …

The Future Of Salt: A Broader Picture, David Gamage, Darien Shanske

Articles by Maurer Faculty

In this essay, we evaluate the new cap on the state and local tax (SALT) deduction. We argue that the structure of the new cap is not consistent with any theory as to what the SALT deduction is or should be. In canvassing these theories, we further evaluate how future reforms to the SALT deduction might proceed.

Wayfair: Marketplaces And Foreign Vendors, David Gamage, Adam Thimmesch, Darien Shanske

Articles by Maurer Faculty

This is the third of a series of essays wherein we analyze the U.S. Supreme Court's decision in South Dakota v. Wayfair. In this essay, we address issues related to state taxation of internet marketplaces and of foreign vendors.

Increasing Transparency In The Us Tax Court, Leandra Lederman

Articles by Maurer Faculty

Transparency is a widely accepted judicial norm because it increases accountability. Access to U.S. Tax Court documents has long differed from access to the documents of other courts. For example, the Tax Court does not participate in PACER (Public Access to Court Electronic Records). This essay discusses some of the ways in which access to Tax Court documents has been restricted; areas in which the Tax Court has increased transparency over the years; upcoming changes; and where increased transparency is still needed, such as with respect to case statistics.

Caveat Irs: Problems With Abandoning The Full Deduction Rule, David Gamage, Joseph Bankman, Jacob Goldin, Daniel J. Hemel, Darien Shanske, Kirk J. Stark, Dennis J. Ventry Jr., Manoj Viswanathan

Articles by Maurer Faculty

Several states have passed — and many more are considering — new tax credits that would reduce tax liability based on donations made by a taxpayer in support of various state, local or non-profit programs. In general, taxpayer contributions to qualifying organizations — including public charities and private foundations, as well as federal, state, local, and tribal governments — are eligible for the federal charitable contribution deduction under section 170. In a previous article, we explained how current law supports the view that qualifying charitable contributions are deductible under section 170, even when the donor derives some federal or state …

Wayfair And The Retroactivity Of Constitutional Holdings, David Gamage, Adam Thimmesch, Darien Shanske

Articles by Maurer Faculty

This essay analyzes the issue of retroactivity with respect to the Supreme Court case of South Dakota v. Wayfair.

Wayfair: Substantial Nexus And Undue Burden, David Gamage, Darien Shanske, Adam Thimmesch

Articles by Maurer Faculty

This is the first of a series of essays wherein we analyze the U.S. Supreme Court’s decision in South Dakota v. Wayfair. In this essay, we tackle some of the more immediate interpretive questions raised by the Wayfair opinion, such as how a state should approach substantial nexus. As part of our analysis, we offer advice to state governments. Specifically, we recommend that states take note of the features of South Dakota’s law that appealed to the Court and replicate or improve on these to the extent possible. We advise states to consider simplifying their sales tax systems (and potentially …

Wayfair: Sales Tax Formalism And Income Tax Nexus, David Gamage, Adam Thimmesch, Darien Shanske

Articles by Maurer Faculty

This is the second of a series of essays wherein we analyze the U.S. Supreme Court's decision in South Dakota v. Wayfair. In this essay, we address issues related to sales tax formalism and income tax nexus.

Why (And How) States Should Tax The Repatriation, David Gamage, Darien Shanske

Articles by Maurer Faculty

This essay analyzed how U.S. state tax laws should treat the repatriation income generated by the 2017 federal tax legislation.

State Responses To Federal Tax Reform: Charitable Tax Credits, David Gamage, Joseph Bankman, Jacob Goldin, Daniel Hemel, Darien Shanske, Kirk J. Stark, Dennis J. Ventry Jr., Manoj Viswanathan

Articles by Maurer Faculty

This paper summarizes the current federal income tax treatment of charitable contributions where the gift entitles the donor to a state tax credit. Such credits are very common and are used by the states to encourage private donations to a wide range of activities, including natural resource preservation through conservation easements, private school tuition scholarship programs, financial aid for college-bound children from low-income households, shelters for victims of domestic violence, and numerous other state-supported programs. Under these programs, taxpayers receive tax credits for donations to governments, government-created funds, and nonprofits.

A central federal income tax question raised by these donations …

A Diachronic Approach To Bob Jones: Religious Tax Exemptions After Obergefell, Samuel D. Brunson, David J. Herzig

Indiana Law Journal

In Bob Jones University v. United States, the Supreme Court held that an entity may lose its tax exemption if it violates a fundamental public policy, even where religious beliefs demand that violation. In that case, the Court held that racial discrimination violated fundamental public policy. Could the determination to exclude same-sex in-dividuals from marriage or attending a college also be considered a violation of fundamental public policy? There is uncertainty in the answer. In the re-cent Obergefell v. Hodges case that legalized same-sex marriage, the Court asserted that LGBT individuals are entitled to “equal dignity in the eyes of …

Consumer-Based Use Tax Enforcement And Taxpayer Compliance, David Gamage, Adam Thimmesch, Darien Shanske

Articles by Maurer Faculty

This essay explains how current state government approaches to use-tax enforcement undermine tax morale and taxpayer compliance. This essay further argues that these threats to tax morale and taxpayer compliance will become even more severe as many states are moving toward adopting notice and reporting statutes for their sales and use taxes.

It Saves To Be Healthy: Using The Tax Code To Incentivize Employer-Provided Wellness Benefits, Hilary R. Shepherd

Indiana Law Journal

With lifestyle-related disease on the rise and an increasing number of employers being held responsible for providing health insurance to their employees, we as a society have incentives to promote wellness, even if only to cut health care costs. Part I of this Note outlines a brief history of employer-provided wellness benefits and provides a concise summary of the employer-provided wellness benefits available. Part II analyzes the relevant federal income tax law, specifically, the fringe benefits provision of the Internal Revenue Code, and concludes that under existing tax law, on-premises gym facilities do not yield any taxable income to employees, …

Book Review. Reviving Fiscal Citizenship, Ajay K. Mehrotra

Articles by Maurer Faculty

In recent years, numerous lawmakers, policy analysts, and scholars have been decrying the many defects of the present U.S. income tax system. Few have attempted to defend our return-based mass income tax. This essay reviews Learning to Love Form 1040, Lawrence Zelenak’s stirring and persuasive defense of a simplified version of our present federal income tax system. In contrast to the conventional economic critiques, Zelenak explores the underappreciated social, cultural, and political benefits of a return-based, mass income tax. Chief among these, he argues, is the existing regime’s potential to raise the tax consciousness of the average citizen and to …

The Case For Taxing (All Of) Labor Income, Consumption, Capital Income, And Wealth, David Gamage

Articles by Maurer Faculty

Perhaps the most fundamental questions in tax legal scholarship concern debates about what should be the ideal tax base or tax bases. In particular, scholars have vigorously disagreed about (1) whether the United States should follow other developed countries in supplementing its income tax with a value-added consumption tax, and (2) whether governments should seek to tax capital income and wealth or should instead seek to redesign or replace income taxes with progressive consumption taxes.

The prior economics-oriented theoretical literature on these questions has largely focused on analyzing labor supply and savings behaviors. Yet the existing empirical literature does not …

Prompt On The King V. Burwell Case, David Gamage

Articles by Maurer Faculty

Once again, the U.S. Supreme Court will be deciding the fate of Obamacare — in the case of King v. Burwell. Also, once again, the future of American healthcare reform will turn on how the Supreme Court reviews a provision of Obamacare that was enacted through the tax code.

So far, the debates over King v. Burwell have largely focused on Constitutional law, Administrative law, and other non-tax-law considerations. Might there be unique tax law perspectives that could be brought in to better illuminate these debates? Does it matter that the provision being reviewed (I.R.C. Sec. 36B) was enacted through …

King V. Burwell: What Does It Portend For Chevron's Domain?, Leandra Lederman, Joseph C. Dugan

Articles by Maurer Faculty

In King v. Burwell, the U.S. Supreme Court affirmed the Fourth Circuit’s decision, upholding regulations that extend the Premium Tax Credit (the Credit) to qualifying taxpayers who purchase health insurance on the Internet-based “Marketplace” operated by the federal Department of Health and Human Services (HHS), despite statutory language extending the subsidy to individuals who purchase through “an Exchange established by the State.” This was the second time in just three years that the Roberts Court engaged in what one critic called “linguistic acrobatics” that rescued President Obama’s signature healthcare law, the Affordable Care Act (ACA)—or, as Justice Scalia …

A Way Forward For Tax Law And Economics? A Response To Osofsky's "Frictions, Screening, And Tax Law Design", David Gamage

Articles by Maurer Faculty

This Essay responds to Leigh Osofsky's, "Who’s Naughty and Who’s Nice? Frictions, Screening, and Tax Law Design." Osofsky’s analysis suggests that tax rules might be designed so as to take account both of heterogeneity in taxpayers’ tax planning proclivities and of taxpayer characteristics relevant for distribution. By designing tax rules so as to create frictions that differentially impose higher costs on those taxpayers who are more successfully circumventing existing taxes we can perhaps reform our tax system so as to better achieve equitable distribution at lower efficiency costs. This Essay argues that Osofsky's analysis is generally correct and that it …

Why The Affordable Care Act Authorizes Tax Credits On The Federal Exchanges, David Gamage, Darien Shanske

Articles by Maurer Faculty

This Essay refutes Adler’s and Cannon’s argument that the Affordable Care Act (“Obamacare”) does not authorize premium tax credits for insurance policies purchased from the federal healthcare Exchanges. Adler’s and Cannon’s argument is the basis of challenges in a number of ongoing lawsuits, including Oklahoma ex rel. Pruitt v. Sebelius and Halbig v. Sebelius. This Essay conducts a textual analysis of the Affordable Care Act and concludes that the text clearly authorizes premium tax credits for insurance policies purchased from the federal healthcare Exchanges.

On November 7th, 2014, the U.S. Supreme Court agreed to hear the appeal of the King …

Book Review. Deficits, Debt, And The New Politics Of Tax Policy By Dennis S. Ippolito, Ajay K. Mehrotra

Articles by Maurer Faculty

No abstract provided.

(Un)Appealing Deference To The Tax Court, Leandra Lederman

Articles by Maurer Faculty

The U.S. Tax Court (Tax Court), which hears the vast majority of litigated federal tax cases, occupies an unusual place in the federal government. It is a federal court located outside of the judicial branch, but its decisions are appealable to the federal courts of appeals. This odd structure, coupled with the court's history as an independent agency in the executive branch, can give rise to important questions, such as the standard of review that should apply to its decisions. In particular, should the courts of appeals treat Tax Court decisions the same as those of district courts in tax …

How Should Governments Promote Distributive Justice?: A Framework For Analyzing The Optimal Choice Of Tax Instruments, David Gamage

Articles by Maurer Faculty

A particular methodology derived from public finance economics has become very influential in the legal literature on taxation and related topics. Sometimes called the “double-distortion” approach, this methodology forms the heart of Louis Kaplow’s book “The Theory of Taxation and Public Economics” and is also the foundation of prominent work by other leading tax legal scholars such as David Weisbach and James Hines.

This Article develops an extended critique of how the double-distortion approach has been used to make legal policy arguments. In doing so, this Article constructs a framework for analyzing how governments can optimally raise revenues and promote …

Enforcement As Substance In Tax Compliance, Leandra Lederman, Ted Sichelman

Articles by Maurer Faculty

It is well known that the government's complete failure to enforce a law can nullify that law. But what are the effects of partial enforcement? This Article shows that imperfect enforcement can alter the de facto content of the written law in predictable and beneficial ways. Specifically, in the tax compliance context, even if perfect enforcement were costless, it would not always be socially optimal. When improving the substantive law is infeasible, the enforcement agency can effect beneficial changes in the law by adopting a probabilistic enforcement scheme that varies according to the category of taxpayer and type of transaction. …

On The Future Of Tax Salience Scholarship: Operative Mechanisms And Limiting Factors, David Gamage

Articles by Maurer Faculty

This Essay — written for Florida State University’s symposium on the 100th anniversary of the U.S. federal income tax — evaluates how the literature on tax salience should be advanced in order for it to better guide tax policy over the coming decades. The literature on tax salience analyzes how taxpayers account for the costs imposed by taxation when the taxpayers make decisions or judgments, both in the taxpayers’ roles as voters and as market participants. This Essay evaluates both possible operative mechanisms that might underlie observed tax salience effects and limiting factors that might prevent tax salience effects from …

Comments On Daniel Shaviro's Tax Reform Implications Of The Risk Of A U.S. Budget Catastrophe, David Gamage

Articles by Maurer Faculty

This symposium essay reviews and comments on Daniel Shaviro's article "Tax Reform Implications of the Risk of a U.S. Budget Catastrophe."

A Tisket, A Tasket: Basketing And Corporate Tax Shelters, Leandra Lederman

Articles by Maurer Faculty

In an income tax system that comported with the economic, or Haig-Simons, definition of income, deductible expenses would not face source-based limitations. A true Haig-Simons income tax system therefore would not take the schedular approach of sorting different types of expenses and losses into distinct conceptual “baskets” containing corresponding types of income. Practical realities often require departing from the Haig-Simons norm, however. The U.S. federal income tax system does require individuals to basket a number of types of expenses and losses. For example, individuals’ passive activity losses can only be deducted from passive income gains. By contrast, most corporations taxed …

The Price Of Conflict: War, Taxes, And The Politics Of Fiscal Citizenship, Ajay K. Mehrotra

Articles by Maurer Faculty

Since 2003 American political leaders and lawmakers have been committed to the simultaneous pursuit of tax cuts and military excursions abroad. Just a few decades ago, when military hawks were also deficit hawks, such a position would have seemed incongruous. This essay reviews, War and Taxes, a provocative and fascinating new book that seeks to explain the apparent dissonance of recent American wartime tax policy. In contrast to conventional wisdom which presumes that wartime patriotism has always and everywhere trumped self-interest, War and Taxes shows that the history of U.S. wartime taxation is not quite such a heroic tale. By …

American Economic Development, Managerial Corporate Capitalism, And The Institutional Foundations Of The Modern Income Tax, Ajay K. Mehrotra

Articles by Maurer Faculty

Histories of the modern American income tax have generally focused on the role that social and political forces have played in the development of a new tax system. This article seeks to move beyond the social and political determinants to examine the economic factors that facilitated the adoption of the modern, graduated income tax. Without marginalizing the importance of social and political factors, the central aim of this article is to make a modest contribution to the legal and political historiography of the U.S. income tax by highlighting how changing material economic conditions afforded social groups, political reformers, and lawmakers …

W(H)Ither Economic Substance?, Leandra Lederman

Articles by Maurer Faculty

Transactions that claim inappropriate tax benefits are a perennial problem. When the IRS claims a transaction is abusive, courts generally examine whether the taxpayer had a business purpose and whether the transaction had economic substance (essentially a prospect of profit before taxes). This two-pronged "economic substance doctrine" developed from a series of Supreme Court cases.

Unfortunately, the economic substance doctrine provides a poor proxy for the real question, which was the focus of the early cases-whether the claimed tax results are consistent with Congress's intent. One important drawback of the shift from a focus on congressional intent to a focus …

Reducing Information Gaps To Reduce The Tax Gap: When Is Information Reporting Warranted?, Leandra Lederman

Articles by Maurer Faculty

A core problem for enforcement of tax laws is asymmetric information. The taxpayer knows the facts regarding the relevant transactions it engages in during the year-or at least has ready access to that information. The government is forced to play catch-up, obtaining that information either from the taxpayer or from third parties. Information reporting is routinely used to address this information gap. The government obtains information about the taxpayer's tax situation from a third party and-equally important-the taxpayer knows that the government has received that information. This fosters taxpayer honesty. Information reporting is not a panacea, however. It imposes costs …