Law Commons^™

Evaluating Beps: A Reconsideration Of The Benefits Principle And Proposal For Un Oversight, Reuven Avi-Yonah, Haiyan Xu

Articles

The Financial Crisis of 2008 and Great Recession that followed have exacerbated income inequality within and between countries. In the aftermath of the economic turbulence, politicians have turned their attention to the twin problems of individual tax evasion and corporate tax avoidance. U.S. legislators enacted the Foreign Account Tax Compliance Act (FACTA), leading to the United States signing a series of Intergovernmental Agreements (IGAs) for the exchange of tax information. The Organization for Economic Co-operation and Development (OECD) developed the Multilateral Agreement for Administrative Assistance in Tax Matters (MAATM) and initiated the Base Erosion and Profit Shifting (BEPS) project to …

No Good Options: Picking Up The Pieces After King V. Burwell, Nicholas Bagley, David K. Jones

Articles

If the Supreme Court rules against the government in King v. Burwell, insurance subsidies available under the Affordable Care Act (ACA) will evaporate in the thirty-four states that have refused to establish their own health-care exchanges. The pain could be felt within weeks. Without subsidies, an estimated eight or nine million people stand to lose their health coverage. Because sicker people will retain coverage at a much higher rate than healthier people, insurance premiums in the individual market will surge by as much as fifty percent. Policymakers will come under intense pressure to mitigate the fallout from a government loss …

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 …

Eliminating Arbitrary Age Descrimination In 401(K) And Pension Plan Eligibility Requirements: A Simple Fix To Encourage Younger Workers To Save For Retirement, Andrew J. Clopton

University of Michigan Journal of Law Reform Caveat

Current federal law allows companies to exclude their youngest workers from participating in 401(k) and other pension plans. Public policy should encourage young workers to contribute to retirement as early as practicable, rather than impose obstacles to saving. Workers who begin saving even a few years earlier improve their retirement security and reduce the likelihood they will be dependent on the government later in life. While “age discrimination” is conventionally thought of as the mistreatment of older workers, this concept applies equally to employees who are differentiated based solely on their young age. Thus, Congress should amend the Internal Revenue …

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 …

A Proposed Replacement Of The Tax Expenditure Concept And A Different Perspective On Accelerated Depreciation, Douglas A. Kahn

Articles

Over 32 years ago, I published an article on accelerated depreciation in which I concluded that some amount of acceleration was consistent with normal tax principles and should not be classified as a tax expenditure. Over the intervening years, from time to time, I have exchanged comments with authors who have questioned that conclusion. It is time to revisit that topic and renew the consideration of how tax depreciation may properly operate. This Essay’s analysis of depreciation provides one example of how the tax expenditure budgets are flawed. The treatment of some accelerated depreciation as a tax expenditure is based …

Energy Subsidies, Market Distortion, And A Free Market Alternative, Hans Biebl

University of Michigan Journal of Law Reform Caveat

Gas and coal are cheap. They are cheap because the U.S. government subsidizes their production. The result is that the marketplace does not recognize the true cost of fossil fuels. Without the subsidies, Americans—for the first time in nearly a hundred years—would experience the cost of unsubsidized fossil fuels. In a newly competitive marketplace, renewable sources of energy would be in a better position to compete. Without gas and coal subsidies, clean energy producers, who have not been able to compete with the low price of fossil fuels, might be more willing to invest in “clean, renewable, and more energy …

Post-Wto China Tax Law System Reform And The Rule Of Law: Progress And Prospects, Tianlong Hu

SJD Dissertations

A close examination of China's accession commitments reveals that effective economic reform and trade liberalization call for substantiations from a matching legal infrastructure reform. For example, taxpayers' rights protection should be viewed in terms of broader political and civil rights reform. Indeed, a number of the values featured in the WTO principles and the rule of law framework encourage China's further integration into both the global trade network and the international human rights regime. This is particularly evident in the Chinese tax law context. WTO principles and the rule of law requirements must be introduced and evaluated together in tax …

The Political Pathway: When Will The Us Adopt A Vat?, Reuven S. Avi-Yonah

Book Chapters

The reason the VAT is on the table is also stated in the referenced article by Orszag: "Although hardly anyone wants to admit it, we're not going to solve our budget deficit unless revenue is part of the equation." And while in the short term it may be possible to address the deficit by raising income tax rates(Orszag suggests letting all the Bush tax cuts expire in 2013}, in the long term it doesn't seem plausible that we can raise sufficient revenue that way to pay for Medicare, Medicaid, Social Security, interest on the national debt, and defense and some …

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 …

Senator Mccain's Corporate Tax Proposals A Critical Examination, Reuven S. Avi-Yonah

Other Publications

Senator John McCain (R-AZ) has proposed two major changes to the corporate tax code: cutting the corporate tax rate from 35 percent to 25 percent and allowing corporations to deduct the full cost of investments in technology and equipment in the first year, an accounting process known as expensing. The first proposal aims to enhance U.S. economic competitiveness, create jobs, and increase wages. The second proposal aims in particular to boost capital expenditures and “reward investment in cutting-edge technologies.”1

Is The Report Of Lazarus's Death Premature? A Reply To Cameron And Postlewaite, Douglas A. Kahn

Articles

Over a year ago, Ms. Faith Cuenin and I wrote an article in this Review (which I hereafter refer to as the "2004 Article") about the tax treatment of guaranteed payments under section 707(c) that are made in kind.' We concluded that a partnership does not recognize gain or loss on the making of a guaranteed payment with appreciated or depreciated property. We also concluded that the partner's basis in the property received will equal its fair market value at the time of payment, and that the payment does not affect the partner's outside basis in his partnership interest except …

Closing The International Tax Gap, Joseph Guttentag, Reuven S. Avi-Yonah

Book Chapters

In July of 1999, the Justice Department entered into a plea bargain with one John M. Mathewson of San Antonio, Texas. Mr. Mathewson was accused of money laundering through the Guardian Bank and Trust Co. Ltd., a Cayman Islands bank. Mr. Mathewson was chairman and controlling shareholder of Guardian, and in that capacity had access to information on its depositors. In return for a reduced sentence, Mr. Mathewson turned over the names of the persons who had accounts at Guardian. The result was an eye-opener: The majority of the accounts were beneficially owned by U.S. citizens, and the reason they …

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 …

The Constitutionality Of Taxing Compensatory Damages For Mental Distress When There Was No Accompanying Physical Injury, Douglas A. Kahn

Articles

Since 1919, statutory tax law has excluded from gross income compensatory damages received on account of a personal injury or sickness.1 The current version of that exclusion is set forth in section 104 (a) (2) of the Internal Revenue Code of 1986.2 The construction of that exclusion, both by the courts and by the Commissioner, underwent significant alterations over the 80-year period that the provision has existed.3 The statute itself was amended several times, most recently in 1996.4 It is the 1996 amendment that has raised a constitutional issue concerning the validity of a portion of the statute.5

Taxation Of Damages After Schleier - Where Are We And Where Do We Go From Here?, Douglas A. Kahn

Articles

This article will examine the reasoning of the Schleier decision and speculate as to how taxation of pre-1996 damages will likely apply in light of Schleier. First, the article will set forth a very brief history of the judicial and administrative constructions of the statutory exclusion, and explore tax policy justifications for providing an exclusion from gross income for certain damages. These latter two items (set forth in Parts II and III of this article) are areas that have been extensively addressed previously by several commentators, including the author of this article.' The reason for exploring tax policy issues is …

Section 338 And Its Foolish Consistency Rules - The Hobgoblin Of Little Minds, Douglas A. Kahn

Articles

The purposes of this Article are to examine whether there is any longer a reason for concern because a target corporation can choose selected assets for nonrecognition and to what extent the 1994 regulations properly deal with potentially abusive circumventions of tax goals. Before examining the current status of the consistency requirements, the historical background that led to the adoption of Section 338 and the operation of the section is discussed. The historical background includes: the judicially created Kimbell-Diamond rule, the codification and modification of that rule by the old version of Section 334(b)(2), the operation of the old version …

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.

An Economic And Political Look At Federalism In Taxation, Daniel Shaviro

Michigan Law Review

Part I of this article examines the reasons for preferring locationally neutral taxes and explains the basic tension between locational neutrality and state and local autonomy in taxation. Part II examines the federal judicial check on state and local taxation, which often relies on a principle barring discrimination against outsiders or interstate commerce. Part III explores the need for a broad federal judicial check by examining state and local governments' reasons for imposing (or avoiding) locationally distortive taxes, the countervailing benefits of allowing such governments broad autonomy in taxation, and Congress' willingness to strike down locationally distortive taxes under its …

Compensatory And Punitive Damages For A Personal Injury: To Tax Or Not To Tax, Douglas A. Kahn

Articles

Since the adoption in 1919 of the Revenue Act of 1918, damages received on account of personal injuries or sickness have been excluded by statute from gross income.1 This exclusion, which does not apply to reimbursements for medical expenses for which the taxpayer was previously allowed a tax deduction,2 is presently set forth in section 104(a)(2). One might expect that a provision having recently attained the ripe age of 75 years without change in its basic language would have a settled meaning. However, recent litigation under section 104(a)(2) bristles with unsettled issues. Does the exclusion apply to punitive damages? To …

Omnibus Taxpayers' Bill Of Rights Act: Taxpayers' Remedy Or Political Placebo?, Creighton R. Meland Jr.

Michigan Law Review

This Note examines whether the bill, as drafted, addresses the problems which spawned it. It anticipates the bill's effects on existing law and identifies areas where the bill would likely create new problems in the administration of the federal tax laws. It further identifies areas where the bill would solve problems. This Note concludes that (1) the bill's audit provisions will not significantly expand taxpayer rights, and may in fact disrupt the audit process; (2) except for safeguards for installment agreements, the bill's attempts to reform IRS collections procedures will not achieve its intended objectives; and (3) the bill's damages …

Should General Utilities Be Reinstated To Provide Partial Integration Of Corporate And Personal Income—Is Half A Loaf Better Than None?, Douglas A. Kahn

Articles

The General Utilities doctrine is the name given to the now largely defunct tax rule that a corporation does not recognize a gain or a loss on making a liquidating or nonliquidating distribution of an appreciated or depreciated asset to its shareholders. The roots of the doctrine, can be traced to a regulation promulgated in 1919 that denied realization of gain or loss to a corporation when making a liquidating distribution of an asset in kind. No regulatory provision existed which specified the extent to which realization would or would not be triggered by a nonliquidating distribution such as a …

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 …

Accelerated Depreciation—Tax Expenditure Or Proper Allowance For Measuring Net Income?, Douglas A. Kahn

Articles

Since the 1950s, it has become fashionable to attack various provisions of the Internal Revenue Code by calling them "subsidies" rather than "proper" means of measuring taxable income. These "subsidies" through Code provisions have come to be referred to as "tax expenditures," a term coined by Professor Stanley Surrey in a speech he made as Assistant Secretary of the Treasury for Tax Policy on November 15, 1967. In that speech, Professor Surrey stated that our tax system often deliberately departs "from accepted concepts of net income," so that by granting exemptions, deductions, and credits that are not appropriate to an …

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 …