Tax Law Commons^™

Unplugging Heartbeat Trades And Reforming The Taxation Of Etfs, Jeffrey M. Colon

Faculty Scholarship

The much-touted tax efficiency of equity exchange traded funds (ETFs) has historically been built upon portfolios that track indices with low turnover and the tax exemption for in-kind distributions of appreciated property.

This rule permits ETFs to distribute appreciated shares tax-free to redeeming authorized participants (APs) and reduce a fund’s future capital gains. ETFs and APs, working together, exploit this rule in so-called heartbeat trades in which an ETF distributes shares of a specific company or companies to a redeeming AP, instead of a pro rata basket of the ETF’s portfolio. The distributed securities are appreciated shares of companies that …

Tax Benefits And Fairness In K–12 Education, Linda Sugin

Faculty Scholarship

This Article examines the tax law’s subsidies for inequality and segregation in primary and secondary education, analyzing the federal charitable deduction and education savings plans, and state tax credits for education. It argues that the tax system diverts funds from traditional public education into private education, fostering economic, racial, religious, and political separation. The tax law also operates to increase resource inequality within public education by subsidizing schools that affluent children attend. In a novel analysis, the Article contends that the jurisprudence around the charitable deduction for education—though longstanding—is legally incoherent, and argues that no deduction should ever be allowed …

Tax Now Or Tax Never: Political Optionality And The Case For Current-Assessment Tax Reform, David Gamage, John R. Brooks

Faculty Scholarship

The U.S. income tax system is broken. Due to the realization doctrine and taxpayers’ consequent ability to defer taxation of gains, taxpayers can easily minimize or avoid the taxation of investment income, a failure that is magnified many times over when considering the ultra-wealthy. As a result, this small group of taxpayers commands an enormous share of national wealth yet pays paltry taxes relative to the economic income their wealth produces—a predicament that this Article condemns as being economically, politically, and socially harmful. The conventional view among tax law experts has assumed that the problems created by the realization doctrine …

The Games They Will Play: Tax Games, Roadblocks, And Glitches Under The 2017 Tax Legislation, David Kamin, David Gamage, Ari Glogower, Rebecca Kysar, Darien Shanske, Reuven Aviyonah, Lily Batchelder, J. Clifton Fleming, Daniel Hemel, Mitchell Kane, David Miller, Daniel Shaviro, Manoj Viswanathan

Faculty Scholarship

No abstract provided.

Unraveling The Tax Treaty, Rebecca Kysar

Faculty Scholarship

Coordination among nations over the taxation of international transactions rests on a network of some 2,000 bilateral double tax treaties. The double tax treaty is, in many ways, the roots of the international system of taxation. That system, however, is in upheaval in the face of globalization, technological advances, taxpayer abuse, and shifting political tides. In the academic literature, however, scrutiny of tax treaties is largely confined to the albeit important question of whether tax treaties are beneficial for developing countries. Surprisingly little consideration has been paid to whether developed countries, like the United States, should continue to sign tax …

The Great Etf Tax Swindle: The Taxation Of In-Kind Redemptions, Jeffrey M. Colon

Faculty Scholarship

Since the repeal of the General Utilities doctrine over 30 years ago, corporations must recognize gain when distributing appreciated property to their shareholders. Regulated investment companies (RICs), which generally must be organized as domestic corporations, are exempt from this rule when distributing property in kind to a redeeming shareholder.

In-kind redemptions, while rare for mutual funds, are a fundamental feature of exchange-traded funds (ETFs). Because fund managers decide which securities to distribute, they distribute assets with unrealized gains and thereby significantly reduce the future tax burdens of their current and future shareholders. Many ETFs have morphed into investment vehicles that …

Don't Give Up On Taxes, Linda Sugin

Faculty Scholarship

Professor Sugin discusses professor Edward D. Kleinbard's latest book, We are Better Than This (2015, Oxford) about the fiscal system and the broader implications of progressive taxation as a policy goal.

Payroll Taxes, Mythology And Fairness, Linda Sugin

Faculty Scholarship

As the 2012 fiscal cliff approached, Congress and President Obama bickered over the top marginal income tax rate that would apply to a tiny sliver of the population, while allowing payroll taxes to quietly rise for all working Americans. Though most Americans pay more payroll tax than income tax, academic and public debates rarely mention it. The combined effect of the payroll tax and the income tax produce dramatically heavier tax liabilities on labor compared to capital, producing substantial horizontal and vertical inequity in the tax system. This article argues that a fair tax system demands just overall burdens, and …

The Great And Mighty Tax Law: How The Roberts Court Has Reduced Constitutional Scrutiny Of Taxes And Tax Expenditures, Linda Sugin

Faculty Scholarship

This article compares National Federation of Independent Business v. Sebelius – the Supreme Court’s decision upholding the individual mandate in Obamacare as a tax, with Arizona Christian Schools v. Winn – the Supreme Court’s decision denying standing to taxpayers with an Establishment Clause challenge to a state tax credit. It argues that these cases aggravate a growing tension between the economic and legal analyses of taxation by reducing the legal significance of economic analysis in constitutional cases. It suggests that Arizona Christian Schools was a truly radical decision because it conceptualized tax expenditures as private action immune from constitutional attack, …

Oil And Water: Mixing Taxable And Tax-Exempt Shareholders In Mutual Funds, Jeffrey M. Colon

Faculty Scholarship

As of 2012, roughly 23% of U.S. households’ assets and 50% of retirement assets are invested in mutual funds, thus making mutual funds one of the most important investment vehicles for U.S. households. The federal taxation of mutual funds and mutual fund shareholders has played a vital role in the development of mutual funds and their appeal to U.S. investors. Despite the significant amount of mutual fund assets held in retirement accounts, there has been very little analysis of the issues that arise when taxable and tax-exempt shareholders invest together in the same mutual fund. A substantial body of research …

Theories Of Distributive Justice And Limitations On Taxation: What Rawls Demands From Tax Systems Symposium - Rawls And The Law: Panel Vi: Property, Taxation, And Distributive Justice, Linda Sugin

Faculty Scholarship

This Essay attempts to map out how such an inquiry would be conducted in light of Rawls. Rather than searching in theories of justice for required precepts of taxation, we might more fruitfully ask what constraints, if any, a particular theory of justice imposes on the tax system. Application of such an approach to Rawls's theory of justice may explain his apparent preference for a flat consumptionbased tax. This preference is otherwise quite puzzling in light of much of what Rawls wrote about economic justice, and might lead us to expect him to endorse a progressive income tax. If Rawls's …

Changing U.S. Tax Jurisdiction: Expatriates, Immigrants, And The Need For A Coherent Tax Policy, Jeffrey M. Colon

Faculty Scholarship

One of the most contentious tax legislative battles of the 104th Congress erupted over the Clinton administration's proposal to amend the U.S. tax rules applicable to expatriates. The administration proposed taxing the abandonment of either U.S. citizenship or long-term U.S. tax residency. The administration's proposal responded to a number of articles in the popular press that described the U.S. tax benefits of expatriation and divulged the names of well-heeled expatriates. Proponents claimed that Congress needed to revise the taxation of expatriates to prevent "billionaire Benedict Arnolds" from avoiding "their fair share" of U.S. income taxes. Opponents argued that the Clinton …

Double Jeopardy Of Corporate Profits, The , Constantine N. Katsoris

Faculty Scholarship

The more one reads about our economy, the more one is baffled and alarmed. Permanent solutions to economic problems are elusive. Treating one financial malaise often aggravates another sector of the economy, necessitating a delicate balancing of conflicting interests. Furthermore, the problems are complicated by the constant influence of foreign forces. Nevertheless, most economists agree that any solution will require enormous funding. Unfortunately, the public has little, if any, confidence in our tax system. Indeed, some tax laws and proposals have been referred to as "obscene" and a "disgrace to the human race." Few quarrel with the aptness of such …