Law Commons^™

Weathering State And Local Budget Storms: Fiscal Federalism With An Uncooperative Congress, David Gamage, Darien Shanske, Gladriel Shobe, Adam Thimmesch

University of Michigan Journal of Law Reform

Throughout most of 2020, state and local governments faced severe budget crises as a result of the COVID-19 pandemic. Increased demand for state welfare services and rising state expenses related to controlling the spread of COVID-19 stretched state and local budgets to their breaking points. At the same time, layoffs, business closures, and social distancing measures reduced states’ primary sources of tax revenues. The traditional practice of American fiscal federalism is for the federal government to step in to provide aid during a national emergency of this magnitude, because state and local governments lack the federal government’s monetary and fiscal …

Making Tax Law Work: Improvisation And Forgotten Taxpayers In Partnership Tax, Andrea Monroe

University of Michigan Journal of Law Reform

There is a growing awareness that federal tax law caters to a small number of wealthy and well-advised taxpayers without regard for the rest of the taxpaying public, and partnership tax is a prime example. This Article explains how complexity and indeterminacy have transformed partnership tax, harming millions of forgotten taxpayers who struggle to comply with their annual filing obligations. A root cause of this phenomenon is the professional culture among elite practitioners, policymakers, and scholars at the heart of the partnership tax system.

The most troublesome provisions of partnership tax are also its most fundamental—namely the allocation rules that …

Expanding The Renewable Energy Industry Through Tax Subsidies Using The Structure And Rationale Of Traditional Energy Tax Subsidies, Blake Harrison

University of Michigan Journal of Law Reform

Just as the government invested in oil and gas, it must now invest in new energy sources. In a sense, Americans need history to repeat itself. This Note suggests that Congress should amend the United States Tax Code to further subsidize the renewable energy industry. Congress should use subsidies historically available to the oil and gas industries as a model in its amendments. These subsidies serve as a model for promoting the renewable energy industry because such subsidies were fundamental in facilitating the oil and gas industries’ dominance today. Ultimately, Congress must further subsidize the renewable energy industry to avoid …

Reconciling Tax Law And Securities Regulation, Omri Marian

University of Michigan Journal of Law Reform

Issuers in registered securities offerings must disclose the expected tax consequences to investors investing in the offered securities (“nonfinancial tax disclosure”). This Article advances three arguments regarding nonfinancial tax disclosures. First, nonfinancial tax disclosure practice, as the Securities and Exchange Commission (the SEC) has sanctioned it, does not fulfill its intended regulatory purposes. Currently, nonfinancial tax disclosures provide irrelevant information, sometimes fail to provide material information, create unnecessary transaction costs, and divert valuable administrative resources to the enforcement of largely-meaningless requirements. Second, the practical reason for this failure is the SEC and tax practitioners’ unsuccessful attempt to address investors’ heterogeneous …

The Individual Mandate Tax Penalty, Jeffrey H. Kahn

University of Michigan Journal of Law Reform

In 2010, President Obama signed legislation that significantly altered the healthcare and health insurance markets in the United States. An integral part of that reform is the individual mandate, a provision that requires individuals to purchase and maintain healthcare insurance. Failure to maintain such coverage subjects an individual to a tax penalty. The Supreme Court upheld the constitutionality of that provision under Congress’s taxing power. Despite the Supreme Court upholding the individual mandate, fundamental questions remain. This Article addresses the question of whether the use of a tax penalty to encourage taxpayers to do something that the government desires is …

Taxing Food And Beverage Products: A Public Health Perspective And A New Strategy For Prevention, Jennifer L. Pomeranz

University of Michigan Journal of Law Reform

The power to tax and spend is considered a primary government power, and the use thereof is associated with great public health achievements. The greatest public health challenge at present stems from the increase in obesity and chronic diseases due to poor nutrition. Several taxation strategies have emerged in the health and economic literature to raise revenue, deter consumption, and address food prices and obesity directly. These proposals include taxing obese individuals, taxing problematic food products, and instituting a tax based on certain food components. This article weighs each proposal's value and disadvantages and concludes by proposing a new tax …

Undoing Undue Favors: Providing Competitors With Standing To Challenge Favorable Irs Actions, Sunil Shenoi

University of Michigan Journal of Law Reform

The Internal Revenue Service occasionally creates rules, notices, or regulations that allow taxpayers to pay less than they would under a strict reading of the law. Sometimes, however, these IRS actions are directly contrary to federal law and have significant economic impact. Challenging favorable IRS actions through litigation will likely be unsuccessful because no plaintiff can satisfy the requirements for standing. To address this situation, this Note proposes a statutory reform to provide competitors with standing to challenge favorable IRS actions in court.

Encouraging Savings Under The Earned Income Tax Credit: A Nudge In The Right Direction, Vada Waters Lindsey

University of Michigan Journal of Law Reform

During 2007, 3.6 million or 9.7% of people in the United States age 65 or older were below the poverty level. In light of the number of elderly people living below the poverty level, it is important that everyone, including low-income workers, have the opportunity to save for retirement. Low-income workers face many challenges to saving for retirement. The barriers to saving include the lack of access to retirement plans and lack of investment savvy. For example, only 42 % of workers employed in service occupations in the private industry have access to employer retirement plans. The percentage drops to …

A New Era Of Tax Enforcement: From 'Big Stick' To Responsive Regulation, Sagit Leviner

University of Michigan Journal of Law Reform

This Article explores the economics of crime and compliance as the dominant approach to U.S. tax enforcement of the past three and a half decades. It evaluates the key advantages and disadvantages of the economic model as well as its application to tax. The Article then addresses the multiplicity of taxpayer behavior and the need and prospect of balancing the economically conceived methods of detection and punishment against other, more cooperative, means and developing a broader approach to tax enforcement more generally. The Article explores responsive regulation as a case study for an alternative method to tax enforcement that heavily …

Families For Tax Purposes: What About The Steps?, Wendy C. Gerzog

University of Michigan Journal of Law Reform

At least 4.4 million families in the United States are blended ones that include stepchildren and stepparents. For tax purposes, these "steps" receive preferential treatment as a result of their status because, on the one hand, they are treated as family members for many income tax benefit sections, but on the other hand, are excluded from the definition of family member for business entity attribution purposes and for gift and estate tax anti-abuse provisions. In the interests of fairness and uniformity, steps should be treated as family members for all tax purposes where they act like their biological or adoptive …

Difficulties In Achieving Coherent State And Local Fiscal Policy At The Intersection Of Direct Democracy And Republicanism: The Property Tax As A Case In Point, Mildred Wigfall Robinson

University of Michigan Journal of Law Reform

Professor Robinson explores the uneasiness present when acts of "direct democracy" through means of voter referenda and ballot initiatives conflict with the ideals of representative government, using fiscal matters, such as the property tax, as an example.

Part I explores the changes that have taken place in the last two decades in voter strategy and in patterns of judicial interpretation, briefly reviewing the history of the property tax focusing on taxpayer reaction to long overdue attempts at administrative reform, and showing how that effort indirectly contributed to the "taxpayer revolt. "It further examines how and why broad-scale attempts to utilize …

Curtailing The Economic Distortions Of The Mortgage Interest Deduction, William T. Mathias

University of Michigan Journal of Law Reform

Many Americans consider the mortgage interest deduction a necessary fixture of the American tax system. In this Article, Mathias examines the economic underpinnings of the deduction and finds that it cannot be justified on purely economic grounds. He then evaluates the major policy arguments for the mortgage interest deduction and concludes that it is inefficient, inequitable, and too costly in its present form to be justified on policy grounds. Finally, the author advocates for the elimination or substantial reduction in the size and scope of the mortgage interest deduction.

The Income Tax Treatment Of Social Welfare Benefits, Jonathan Barry Forman

University of Michigan Journal of Law Reform

Part I of this Article describes the major social welfare programs in the United States. Part II outlines the basic structure of the federal income tax and describes how social welfare benefits are treated by the income tax system. Finally, Part III surveys some recent proposals to tax particular social welfare benefits and considers the arguments for and against taxing such benefits. The Article concludes that the need for new revenue sources will push the federal government to reconsider the tax treatment of social welfare benefits.

Distinguishing Between Capital Expenditures And Ordinary Business Expenses: A Proposal For A Universal Standard, Steven J. Greene

University of Michigan Journal of Law Reform

It is apparent from an examination of the various court decisions that there is no single, common standard used to distinguish between capital expenditures and ordinary business expenses. The courts are not completely to blame for this situation, however, because the Internal Revenue Code provides little guidance on the capital/ordinary distinction. This Note proposes an amendment to the Tax Code that would provide courts with a universal standard to apply in differentiating between the two types of expenditures and that best reflects the general purpose of the Code in matching income with its related expenses. Part I analyzes the historical …

Tax-Based Incomes Policy (Tip) As A Alternative To Wage And Price Controls, Steven R. Hunsicker

University of Michigan Journal of Law Reform

Part I of this article will evaluate the major arguments opposing such policies against the background of the recent American experience with wage and price controls. Part II, in light of the applicability of these arguments to TIPs, will consider whether some variant of TIP could realize the claimed benefits while minimizing the economic and administrative costs usually associated with wage and price controls.

Penalizing Bribery Of Foreign Officials Through The Tax Laws: A Case For Repealing Section 162 (C)(1), Christopher Alan Lewis

University of Michigan Journal of Law Reform

Most commentary on these congressional attempts to use tax laws to control the ethics of overseas enterprises has centered either on the effectiveness of these provisions or on the burdens and difficulties involved with their implementation. This article, while discussing these issues, is concerned primarily with the conceptual justifications and the direct economic effects of these tax provisions. The article contends that section 162(c)(1) and the pertinent provisions of the Tax Reform Act of 1976 are disguised penalties which often operate arbitrarily and unfairly and concludes that they should be repealed in favor of more equitable and effective deterrents.

Taxpayer Rights In Noncustodial Irs Investigations After Beckwith V. United States, Curtis L. Christensen

University of Michigan Journal of Law Reform

The recent Supreme Court decision in Beckwith v. United States, holding that Miranda does not extend to noncustodial tax investigations, has important implications with respect to the News Release doctrine and the involuntary consent grounds considered in motions to suppress evidence. This article will examine Beckwith and its potential significance with respect to these other doctrines, discussing the factors which the IRS and the courts should consider in order to assure fair treatment of taxpayers during investigations.

The Application Of Depletion To Geothermal Resources, Stephen A. Million

University of Michigan Journal of Law Reform

The energy crisis and the increasing costs of conventional sources of energy have created increased interest in geothermal resources as an alternative energy source. One impediment to the development of geothermal resources is the uncertainty of their status under federal tax law. This note analyzes the application of the depletion provisions of the Internal Revenue Code of 1954 to geothermal resources. Consideration is given to whether geothermal resources are exhaustible, whether they can or should be viewed as heat, and whether heat is a natural deposit or a mineral. Since geothermal resources exist in several forms, and since the depletion …

Scope Of Disclosure Of Internal Revenue Communications And Information Files Under The Freedom Of Information Act, Peter R. Spanos

University of Michigan Journal of Law Reform

This article will discuss the proper scope of disclosure under the Freedom of Information Act of the files and administrative and policy materials of the IRS, with particular attention to the following currently contested issues: (1) the extent to which IRS guideline documents and private letter rulings are subject to disclosure; (2) the proper scope of the FOIA exemption for "interagency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency" as applied to the IRS; and (3) the scope of the exemption for "investigatory records …

Gimme Shelter: Reform Of Real Estate Tax Shelters, Farrell C. Glasser

University of Michigan Journal of Law Reform

Of the many different kinds of tax shelter investments that are available to high bracket taxpayers, the most commonly encountered device is the real estate tax shelter. This article describes the way a tax shelter operates, from both a business-economic and a tax viewpoint, and examines the real estate tax shelter from the standpoint of possible tax reform to correct the abuses that stem from real estate syndications.

Judicial Tax Courts For The States: A Modern Imperative, William D. Dexter

University of Michigan Journal of Law Reform

There has been growing discontent among tax gatherers and taxpayers alike over the disposition of state and local tax disputes. Concern centers on the nature of appellate review and its availability irrespective of the tax involved or the amount or subject matter in controversy. In many jurisdictions the system of review in tax cases presents an unwieldy array of alternative administrative and judicial avenues of review which are confusing to the prospective tax appellant and destructive of economy and uniformity in the system. This article will assess the need for a specialized judicial court to review the initial disposition of …