Law Commons^™

Rethinking Eisner V. Macomber, And The Future Of Structural Tax Reform, Alex Zhang

Faculty Articles

In June 2023, the Supreme Court granted the petition for a writ of certiorari in Moore v. United States, ostensibly a challenge to an obscure provision of the 2017 tax legislation. Moore’s real target is the constitutionality of federal wealth and accrual taxation, which policymakers have proposed to combat record inequality and raise revenue for social-welfare reform. At the center of the doctrinal dispute in Moore is a century-old case, Eisner v. Macomber, on which the Moore petitioners and other commentators have relied to argue that Congress has no power to tax wealth or unrealized gains—e.g., appreciation …

Equality Offshore, Martin W. Sybblis

Faculty Articles

Global governance architecture, crafted by wealthy nations, has perpetuated the subordination of developing jurisdictions. The Article offers a novel and surprising analysis of governance tools used by wealthy countries and inter-governmental organizations to constrain offshore financial centers (OFCs) by focusing on the tools’ disparate impacts on tax havens whose populations comprise predominantly Black and Brown people. With tax haven issues garnering increasing attention, this Article provides a pathbreaking conceptual framework for examining the international tax, crime, and business discourse on OFCs. It also illuminates how the actions of powerful international actors, such as the Organization for Economic Cooperation and Development …

Antidiscrimination And Tax Exemption, Alex Zhang

Faculty Articles

The Supreme Court held, in Bob Jones University v. United States, that violations of fundamental public policy— including race discrimination in education—disqualify an entity for tax exemption. The holding of the case was broad, and its results cohered with the ideals of progressive society: the government ought not to subsidize discrimination, particularly of marginalized groups. But almost four decades later, the decision has never realized its antidiscriminatory potential. The Internal Revenue Service (IRS) has limited implementation to the narrowest facts of the case. The scholarly literature has not formulated a systematic account of how to enforce the Bob Jones …

Pandemics, Paid Sick Leaves, And Tax Institutions, Alex Zhang

Faculty Articles

The COVID-19 pandemic is currently ravaging the world, and the United States has been largely unsuccessful at containing the coronavirus. One long-standing policy failure stands out as having exacerbated the pandemic in our country: the lack of a national mandate of paid sick leaves, without which workers face financial and workplace-cultural pressures to attend work while sick, thus spreading the virus to their fellow employees and the public at large.

This Article provides the blueprint for a national, subsidized mandate of paid sick leaves and two additional insights about our tax institutions as mechanisms of effectuating broader societal goals. It …

The Wealth Tax: Apportionment, Federalism, And Constitutionality, Alex Zhang

Faculty Articles

Proposals of wealth taxation as a mechanism to combat economic inequality and raise revenue for welfare programs have dominated recent political debate. Despite extensive academic commentary, questions surrounding the constitutionality of a wealth tax remain unresolved. Previous scholarly approaches have drawn a dichotomy between two key cases. Supporters of the wealth tax emphasize Hylton's functional rule for identifying direct taxes, which must be apportioned under the Constitution, and reject Pollock, which invalidated the federal income tax on the grounds that it was a direct tax. Opponents of the wealth tax, in contrast, argue that Pollock, rather than …

Back To The Future: Marriage And Divorce Under The 2017 Tax Act, Mark W. Cochran

Faculty Articles

The Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act) significantly altered the federal tax consequences of marriage and divorce by mostly eliminating the so-called "marriage penalty" from the individual income tax rates and abolishing the deduction for alimony payments. These changes represent the latest congressional tinkering with issues that have persisted since the earliest days of the modem income tax, turning back the clock with regard to taxation for both married and divorced couples. For the first time, since the enactment of the Tax Reform Act of 1969, the rate brackets for married taxpayers filing joint returns …

U.S. Tax Imperialism, Diane Lourdes Dick

Faculty Articles

This article uses historical and legal analysis to demonstrate how U.S. domination over Puerto Rico's tax and fiscal policies has been the centerpiece of a colonial system and an especially destructive form of economic imperialism. Specifically, this article develops a novel theory of U.S. tax imperialism in Puerto Rico, chronicling the sundry ways in which the United States has used tax laws to exert economic dominance over its less developed island colony. During the colonial period, U.S. officials wrote and revised Puerto Rican tax laws to serve U.S. economic interests. In more recent years, U.S. tax laws have disadvantaged Puerto …

The Taxation Of Intellectual Capital, Lily Kahng

Faculty Articles

Intellectual capital-broadly defined to include nonphysical sources of value such as patents and copyrights, computer software, organizational processes, and know-how-has a long history of being undervalued and excluded from measures of economic productivity and wealth. In recent years, however, intellectual capital has finally gained wide recognition as a central driver of economic productivity and growth. Scholars in fields such as knowledge management, financial accounting, and national accounting have produced a wealth of research that significantly advances the conceptual understanding of intellectual capital and introduces new methodologies for identifying and measuring its economic value. This article is the first to analyze …

Bankruptcy’S Corporate Tax Loophole, Diane Lourdes Dick

Faculty Articles

Imagine you are a company with a failing business that is drowning in debt. On the bright side, you also possess a very valuable asset. This asset is unique because, unlike most assets, if you liquidate the business through a Chapter 7 bankruptcy, it will be extinguished and its value will not be realized by any shareholders or creditors. On the other hand, even if you substantially liquidate the business using Chapter 11, you can, thanks to an extraordinary ambiguity in the law, preserve this valuable asset. Even better, you can direct the value of this asset to your preferred …

Path Dependence In Tax Subsidies For Home Sales, Lily Kahng

Faculty Articles

At a time of looming fiscal crisis and virtual unanimity that tax expenditures must be curtailed, tax subsidies for homeownership stand out as among the most costly and unfair of these expenditures. As a result of tax subsidies for homeownership, the government foregoes billions of dollars in revenue each year, most of which benefits wealthy taxpayers. Moreover, subsidies for homeownership encourage overinvestment in housing and underinvestment in other business sectors, which impedes economic productivity, jobs creation and the ability of U.S. businesses to compete in the global marketplace.

Scholars and commentators have analyzed extensively the tax subsidy for home mortgage …

Embracing The Queen Of Hearts: Deference To Retroactive Tax Rules, James Puckett

Faculty Articles

The Supreme Court's decision in Mayo Foundation for Medical Education and Research v. United States underscored the importance of a uniform approach to judicial review of administrative action; accordingly, the Court clarified that tax administration is generally subject to the same review as other kinds of administrative action by other federal agencies. Tax guidance from the IRS and Treasury Department serves an important role in clarifying the tax law so that taxpayers may report their tax liability accurately and plan their affairs. Meanwhile, aggressive attempts by a relatively small number of taxpayers to avoid tax liability by exploiting arguable ambiguities …

Costly Mistakes: Undertaxed Business Owners And Overtaxed Workers, Lily Kahng, Mary Louise Fellows

Faculty Articles

This Article advocates fundamental changes in the federal income tax base by systematically challenging conventional understandings of consumption and investment. As signaled by its title, "Costly Mistakes," this Article's thesis has to do with the disparate treatment of expenditures incurred by business owners and workers. Where the current tax law treats a business owner's expenditure as investment, the Article sometimes finds consumption and questions why the law should allow the expenditure to be deducted. Where the tax law treats a worker's expenditure as consumption, the Article sometimes finds investment and questions why the law does not allow at least a …

Economic Justice And The Internal Point Of View, Adam J. Macleod

Faculty Articles

The West is in a tumult about money. In the United States, the Tea Party movement and the Occupy Wall Street movement captured the public's attention, sounding themes of fiscal irresponsibility and material inequality, respectively. Political negotiations over the so-called "fiscal cliff," the debt ceiling, taxes, and entitlement spending, have kept these themes before the public eye. In Europe, the protests have been more dramatic, and the declarations of national leaders that the European Union is in no danger of disintegrating have sounded at times suspiciously forceful.

Despite all of the exhortations that lawmakers should do something, the public debates …

Investment Income Withholding In The United States And Germany, Lily Kahng

Faculty Articles

In a reversal from its historical roots, the United States income tax system now taxes income from labor significantly more heavily than income from capital. It does so not only facially, through explicit preferences for income from capital, but also more subtly, through more hidden features of the tax system – specifically, enforcement strategies. This article focuses on a prominent disparity in enforcement between the two forms of income: Wage income is subject to withholding while investment income is not.

In its critical examination of this disparity, the article first offers a brief history of withholding in the United States, …

Rethinking Tax Priorities: Marriage Neutrality, Children, And Contemporary Families, James Puckett

Faculty Articles

Tax scholarship has long struggled with whether married taxpayers should be taxed differently from unmarried taxpayers. Currently, married taxpayers are subject to different tax rates than unmarried taxpayers, and may file a joint tax return. A married couple may pay a higher or lower amount of tax than an unmarried couple with the same total income, and a single person generally pays more tax on a given income than a married couple with a single earner with the same income. These outcomes are difficult to reconcile with a commitment to income tax progressivity, which in theory requires that higher incomes …

Zakat: Drawing Insights For Legal Theory And Economic Policy From Islamic Jurisprudence, Russell Powell

Faculty Articles

The rapid development of complex income taxation and welfare systems in the 20th century may give the impression that progressive wealth redistribution systems are uniquely modern. However, religious systems provided similar mechanisms for addressing economic injustice and poverty alleviation centuries earlier. Zakat is the obligation of almsgiving and is the third pillar of Islam - a requirement for all believers. In the early development of the Islamic community, zakat was collected as a tax by the state and the funds were distributed to a defined set of needy groups. As a theoretical matter, there are three insights that make zakat …

Tax And Economic Policy Responses To The Medicaid Long-Term Care Financing Crisis: A Behavioral Economics Approach, Diane Lourdes Dick

Faculty Articles

This article contributes to the prominent dialogue surrounding the healthcare financing crisis. It does so by analyzing policy solutions using consumer choice theory.

Innocent Spouses: A Critique Of The New Laws Governing Joint And Several Tax Liability, Lily Kahng

Faculty Articles

This article provides a framework for such interpretation and implementation of the new innocent spouse laws. The author presents an overview of the current tax law treatment of married joint filers under which joint and several liability is imposed unless relief is available under the new innocent spouse laws. The article then examines the tax rationales that have traditionally been offered for imposing joint and several liability. The author concludes that because the fiction of marital unity is deeply embedded in our tax system, joint and several liability for married joint filers is likely to remain the law. While it …

A Resource Guide To Tax Law Careers, Robert H. Hu

Faculty Articles

This Guide is designed to assist law students and attorneys in the pursuit of careers in tax law. It is also intended for librarians and career counselors to readily find tax law career information so that they can assist their clients effectively. It includes resources in both print (for example, books and articles) and electronic formats (for example, Web sites). Each item included has a brief annotation so that the user can quickly decide the relevancy and value of that item.

Resurrecting The General Utilities Doctrine, Lily Kahng

Faculty Articles

This article examines the finance literature exploring the causes and consequences of takeovers and concludes that the policies underlying General Utilities repeal were misguided. This article finds that repeal of the General Utilities doctrine has made inefficient acquisitions more attractive while making efficient ones less attractive. Furthermore, repeal of the General Utilities doctrine has reduced the attractiveness of the most efficient means by which managers can divest themselves of the product of their past acquisitiveness. This article concludes that certain aspects of the doctrine should be reinstated.

1969: The Birth Of Tax Reform, Mark W. Cochran

Faculty Articles

This narrative poem framed from Robert Penn Warren’s epic poem, “Brother to Dragons,” transforms Warren’s poem into a satirical take on tax reform covering the origins, implementation, effectiveness, and future of American tax reform legislation. The poem begins by highlighting economic, political, social, and pop culture events from the American 1960s. The author discusses the emergence of and reasons for tax reform detailing the policy behind reform along with the positive and negative aspects of the original Tax Reform Act of 1969. The first reform attempted to curtail tax shelters by limiting risk write-offs, but exceptions in the reformation allowed …

Filling Gaps In The Close Corporation Contract: A Transaction Cost Analysis, Charles O'Kelley

Faculty Articles

This article develops a more refined transaction-cost based theory which explains: why rational investors in jointly owned, closely held firms initially choose corporate form; why they leave the contractual gaps that they do; and how efficiency-minded judges should respond to postharmony disputes made possible by the form chosen and the gaps left. Professor O’Kelley’s theory takes into account not only the possibility that investors should have chosen partnership law, but also the advantages and disadvantages of organizing production as an implicit team, via long-term contracts between separate businesses or as a sole proprietorship. In explicating this theory of form choice, …

Should Personal Injury Damage Awards Be Taxed?, Mark W. Cochran

Faculty Articles

The exclusion of personal injury damage awards from gross income is inconsistent with established principles of taxation. Section 104(a)(2) of the Internal Revenue Code excludes from gross income “the amount of any damages received . . . on account of personal injury or sickness.” While the existence of Section 104(a)(2) traditionally has been justified as a humanitarian gesture, more logical explanations have been offered.

Damage awards cannot accurately be characterized as a return of capital. Nor does the involuntary nature of the transaction justify the exclusion. While so-called imputed income is not taxed, the reasons supporting its non-taxability do not …

The Infield Fly Rule And The Internal Revenue Code: An Even Further Aside, Mark W. Cochran

Faculty Articles

Baseball’s infield fly rule and certain provisions of the Internal Revenue Code are similar. The purpose of the infield fly rule is to prevent the defense from making a double play by subterfuge, at a time when the offense is helpless to prevent it.

In baseball, as in life, fairness is an elusive concept that defies precise definition. Considering the infield fly rule, the “unfairness” derives from the infielder’s ability to manipulate a situation without incurring any risk. Federal tax law, like the rules of baseball, recognizes and responds to the “manipulation without risk” phenomenon. Section 267 of the Internal …

Looking A Gift-Horse In The Mouth: Some Observations And Suggestions For Improving Internal Revenue Code Section 1244, Henry F. Johnson, Mark W. Cochran

Faculty Articles

Most investors who contemplate a new business venture concentrate on the positive financial aspects of the business. Few investors realize that a thorough tax plan for a prospective business must also account for the contingency of failure. Since the failure of a business venture will, in some way, result in a taxable event, the conscientious corporate planner must devise a strategy that will utilize the losses incurred in order to achieve the most advantageous tax result. Internal Revenue Code section 1244 is not new, not particularly complex, and not fraught with misfortune for taxpayers failing to meet its provisions. This …

The Parenting Tax Penalty: A Framework For Income Tax Reform, Charles O'Kelley

Faculty Articles

Part I considers the proper tax treatment of out-of-pocket parenting expenses such as the costs incurred in providing food, clothing, shelter, and other goods and services to children for their consumption. Part I first characterizes the principal design alternatives to the present flat dependency deduction. It then examines the dominant accretion definition of income and concludes that the current flat dependency deduction is more consistent with the accretion concept and our actual governing beliefs than any of the alternatives advocated by its critics. Part II considers the tax relevance of imputed income from self-performed services. It explains (1) how the …

Tax Policy For Post-Liberal Society: A Flat Tax Inspired Redefinition Of The Purpose And Ideal Structure Of A Progressive Income Tax, Charles O'Kelley

Faculty Articles

A flat rate comprehensive federal income tax could be achieved by replacing graduated rates with a single rate that applies to all taxpayers, eliminating many currently available deductions and credits, and treating as taxable income types of economic gain presently excluded from the tax base. The fact that Congress is seriously considering such radical changes makes it appropriate for tax scholars to reconsider longheld beliefs about the ideal structure of an income tax. This article analyzes the characteristics and underlying rationale of a progressive flat rate comprehensive income tax and reconsiders the nature and purpose of a progressive income tax. …

The Constitutional Rights Of Corporations Revisited: Social And Political Expression And The Corporation After First National Bank V. Bellotti, Charles O'Kelley

Faculty Articles

The Supreme Court has addressed only a few occasions the extent to which corporations enjoy those constitutional rights so fundamental to private citizens. In this article Professor O'Kelley discusses the inherent difficulty in applying familiar constitutional principles to corporations and examines those cases in which the Supreme Court has either extended or denied to corporations various constitutional rights. Finding that two underlying conceptual doctrines -- the Field rational and the associational rationale -- have guided the Court in previous decisions in this area, he then applies these doctrines in an analysis of the recent Supreme Court decision in First National …

A Different Look At The Taxation Of Corporate Distribution And Shareholder Gain, Charles O'Kelley

Faculty Articles

The taxation of corporate distributions and shareholder gain is an area of the Internal Revenue Code which has fostered a seemingly never-ending yet never-successful attempt by the Courts and Congress to design a coherent, non-discriminatory regime. In this article, Professor O'Kelley sets forth a proposal for a logical system for treating corporate distributions to shareholders which would strengthen the double tax scheme, and eliminate its present loopholes.