Law Commons^™

Transaction-Specific Tax Reform In Three Steps: The Case Of Constructive Ownership, Thomas J. Brennan, David M. Schizer

Faculty Scholarship

Similar investments are often taxed differently, rendering our system less efficient and fair. In principle, fundamental reforms could solve this problem, but they face familiar obstacles. So instead of major surgery, Congress usually responds with a Band-Aid, denying favorable treatment to some transactions, while preserving it for others. These loophole-plugging rules have become a staple of tax reform in recent years. But unfortunately, they often are ineffective or even counterproductive. How can Congress do better? As a case study, we analyze Section 1260, which targets a tax-advantaged way to invest in hedge funds. This analysis is especially timely because a …

Interlinking Between Income Tax, Citizenship And Democracy? A Case Study Of Canada And China, Jinyan Li

Conference Papers

The interlink between taxation, citizenship and democracy appears to be obvious in Western democracies: citizens are voters, taxpayers and beneficiaries of public spending funded by tax revenues. The literature on the politics of taxation suggests that democratic institutions affect taxation at every stage of the policy-making process, the type of elections and governance model influence the level of redistribution and complexity of the tax system, democracies generally choose policies that are more favorable to the poor than non-democracies, the tax mix varies with the nature of the political regime, and more repressive governments rely less on personal income taxation. Political …

Solving The Valuation Challenge: The Ultra Method For Taxing Extreme Wealth, David Gamage, Brian Galle, Darien Shanske

Faculty Publications

Recent reporting based on leaked tax returns of the ultra-rich confirms what experts have long suspected: for the wealthiest Americans, paying taxes is mostly optional. Some of the country's richest have reported annual incomes that would be modest for a school teacher, even as the share of wealth held by the top .1% is at its highest in nearly a century.

Experts have long understood that one problem sits at the root cause of many of the tax system's failures to reach the very rich: valuation. Because it is difficult to appraise complex or unique assets, modern tax systems instead …

Tax Events In The Life Cycle Of Digital Tokens, Vincent Ooi

Research Collection Yong Pung How School Of Law

Digital tokens, or crypto assets, are digital financial assets based on distributed ledger technology. They come in a considerable variety of forms and have been used in a large number of different ways. Yet, relatively few tax laws of any jurisdiction mention digital tokens specifically. It is therefore necessary to consider how orthodox tax rules can be applied to transactions involving digital tokens. Given the broad range of forms which digital tokens and transactions involving them can take, this may appear to be a daunting task. A framework providing a rough guide on how to navigate this somewhat new area …

Report On The Challenges Which Digital Assets Pose For Tax Systems With A Special Focus On Developing Countries, Vincent Ooi

Research Collection Yong Pung How School Of Law

The paper highlights the need for governments to carefully consider the implications which the rise of crypto assets can have on tax systems, noting that the absence of a deliberate policy position would be a policy decision in itself, with consequences for the tax base. It discusses four main classes of tax risks which crypto assets pose.Firstly, crypto assets and crypto transactions can act as ‘functional substitutes’ for traditional assets and transactions. As existing tax laws are drafted without crypto assets in mind, this can produce a host of unintended tax consequences and produce opportunities for tax arbitrage.Secondly, the values …

Crypto Assets And The Problem Of Tax Classifications, Eric D. Chason

Faculty Publications

To date, Internal Revenue Service (I.R.S.) guidance on cryptocurrencies has been thin. When the I.R.S. has issued guidance, it occasionally mishandles the technical details (such as confusing air drops and hard forks). More personnel (and personnel with greater technical expertise) would allow the I.R.S. to keep pace with the explosive growth of cryptocurrency. Nevertheless, the I.R.S. could better leverage its existing resources by focusing on select issues and seeking enabling legislation from Congress. Specifically, the I.R.S. should focus on crypto issues occurring on a system-wide basis and not requiring taxpayer-specific considerations.

For example, determining whether Bitcoin is a “security” under …

Virtual Worlds, Real Money: Tax Issues In The Metaverse, Vincent Ooi, Daryl Loy

Research Collection Yong Pung How School Of Law

When it comes to the tax world, the starting point is that international tax law does not currently give any special status to a meta realm as a distinct jurisdiction. The metaverse is not a term of art recognised by tax law. However, what we are likely to see is a change in business models and behavioural patterns, leading to different kinds of taxable events becoming either more or less prominent. Tax law may not inevitably change but the tax issues of the day will.In this article, we highlight three broad business models that are likely to feature prominently in …

A New Framework For Taxing Cryptocurrencies, Reuven S. Avi-Yonah, Mohanad Salaimi

Articles

This Article explores the tax law challenges associated with the taxation of cryptocurrencies and offers proposals to address such challenges. The Article addresses the proper tax treatment of different cryptocurrency transactions and activities. It examines various aspects associated with the taxation of cryptocurrency through its life cycle, starting from earning cryptocurrency, through its disposal or exchange. The Article also examines the tax treatment of two special crypto events, hard forks and airdrops. Specifically, this Article describes a proposal to tax cryptocurrencies based on their unique features. It argues that various ways of earning or receiving crypto tokens (for example, mining …

The Income Tax, The Constitution, And The Unrealized Importance Of Helvering V. Griffiths, Lawrence Zelenak

Faculty Scholarship

The Supreme Court recently granted certiorari in Moore v. United States, for the purpose of deciding whether the realization doctrine remains a constitutional limitation on Congress's ability to impose an unapportioned income tax, as the Court held in its famous 1920 decision in Eisner v. Macomber. Although it is natural to look to 1920 and Macomber as the cause of today's uncertain scope of the congressional power to tax income, what did not happen in the Court's 1943 decision in Helvering v. Griffiths is as significant as what did happen in 1920. the presence of Moore on the Court's docket …

Pink Tax And Other Tropes, Bridget J. Crawford

Elisabeth Haub School of Law Faculty Publications

Law reform advocates should be strategic in deploying tax tropes. Through an examination of five common tax phrases—the “nanny tax,” “death tax,” “soda tax,” “Black tax,” and “pink tax”—this Article demonstrates that tax rhetoric is more likely to influence law when used to describe specific economic injustices resulting from actual government duties, as opposed to figurative inequalities. In comparison, slogans describing figurative taxes are less likely to influence law and human behavior, even if they have descriptive force in both popular and academic literature as a short-hand for group-based disparities. This Article catalogues and evaluates what makes for effective tax …

A Beginner's Guide To Cryptocurrencies: Explaining The Technologies Behind Cryptocurrencies, How The United States Taxes And Regulates Them, And Offering Changes To The Existing Taxation And Regulation Schemes, J. Merritt Francis

Law Student Publications

The United States federal government has attempted to use its existing regulatory and taxation schemes to regulate and tax cryptocurrencies, while many individuals are still unsure as to what cryptocurrency really is. The Securities and Exchange Commission and the Commodities Future Trading Commission have both asserted their jurisdiction over cryptocurrency, resulting in unclear guidance for developers in the cryptocurrency space and a failure to adequately protect investors. Further, the Internal Revenue Service taxes cryptocurrency like a security rather than a currency, which disincentivizes adopting cryptocurrency as a form of payment. Nevertheless, although cryptocurrencies are taxed like securities, there are tax …

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 …

International Tax Reform: Who Gets A Seat At The Table?, Assaf Harpaz

Scholarly Works

The international tax framework relies on early-twentieth-century principles and favors the interests of the Global North, which created it. It bases taxing rights on a corporation’s physical presence and mostly allocates profits to the country of residence. Moreover, it has been slow to adapt to modern business practices. In the digital economy, companies shift profits with relative ease and often do not require a physical presence in the location of their consumers. International taxation needs reform, but leading proposals do not reflect meaningful input from the Global South and are unlikely to serve the needs of developing countries.

In 2021, …

Stanley Surrey's Lasting Influence, Assaf Harpaz, C. Eugene Steue

Scholarly Works

Stanley Surrey is perhaps best known for his promotion of the concept of tax
expenditures—the characterization of various tax preferences as substitutes for
direct expenditures. That emphasis understates his lasting influence on the tax
policy process. An equally important and lasting achievement was establishing
and promoting the integrity and professionalism of the Treasury’s Office of Tax
Policy (OTP), while garnering the support of much of the wider tax policy
community for basing tax policy on the principles of fairness, simplicity, and
efficiency.

In this article, we focus mainly on historical developments in the concept and
use of tax expenditures both …

The Curious Case Of The 0.1 Per Cent Service Charge, Vincent Ooi

Research Collection Yong Pung How School Of Law

Just before 1 August 2022, a coffeeshop zi char chain announced that it would impose a 0.1% service charge. This decision was reversed within two weeks due to "customers' reactions".While the rate might appear to be absurdly low and not worth the trouble of imposing, this article suggests that there was more to the situation than first meets the eye. GST regulations require merchants to list GST inclusive prices unless the goods and services are provided by hotels and F&B outlets that are subject to a service charge. The 0.1% rate is thus explicable as a likely attempt to get …

Green, Or Greed? A Fresh Perspective On The Valuation Of Conservation Easements, Alan L. Feld, Theodore S. Sims, Jacob Nielson

Faculty Scholarship

Charitable contributions of "conservation easements" have since 1980 allowed high-income taxpayers to shelter income from taxation through overvalued deductions. Overvaluation has increased dramatically in the past 20 years: a 2016 study of all easement decisions since 1980 reported that while overvaluation had averaged by a factor of two before 1994, it averaged by a factor of ten for decisions between 1994 and 2016. SOI data disclose that aggregate easement contributions deducted on Schedule A grew from $2.26 billion in 2015 to $6.5 billion in 2018 (the most recent year available). A recent report by supporters of conservation easements acknowledges that …

Tax Challenges In Debt Financing Involving Digital Tokens, Vincent Ooi

Research Collection Yong Pung How School Of Law

When digital tokens are used in debt finance, one cannot assume that the same orthodox tax treatment will apply. The highly specific nature of tax provisions means that they may apply very differently once digital tokens rather than fiat currency are involved. Through a case study of Singapore law, this article shows that if debt finance transactions involving digital tokens are not carefully structured, there may be severe tax consequences, including the inability to deduct borrowing costs or benefit from common tax incentives, and the possible incurrence of additional tax liabilities. This article submits that, under Singapore tax law, it …

Made Crypto Losses? Don't Assume The Taxman Will Subsidise You, Vincent Ooi, Vincent Ooi

Research Collection Yong Pung How School Of Law

The key points we made in the article are as follows:1) One might think that because income from transactions involving cryptocurrencies is taxable, the losses from such transactions would also be deductible. Unfortunately, the situation is not quite so straightforward.2) The key question is whether it is possible to establish that there was a trade or business (in trading cryptocurrencies). If so, then the deduction rules are a lot more generous. Otherwise, there will be quite a few restrictions:a) Losses from cryptocurrency transactions are unlikely to be useable to be set off against income from other sources.b) The losses will …

An Automation Tax- Adopt With Caution, Vincent Ooi

Research Collection Yong Pung How School Of Law

The post highlights three main issues that may result from the rapid and widespread automation of jobs: 1) declining tax revenues; 2) inequitable distribution of gains and losses from automation; and 3) social costs of job displacement, such as social support and retraining programmes for displaced workers.An automation tax may be imposed on a temporary basis to manage (slow) the rate of displacement of workers due to the adoption of automation technologies, but should not be a permanent feature. Otherwise, there will be a risk of loss of competitiveness in the long-term, possibly resulting in even greater economic harm.One main …

New Assets, (Largely) Same Old Rules: The Taxation Of Digital Tokens, Vincent Ooi

Research Collection Yong Pung How School Of Law

In this blog post, I highlight the fact that across jurisdictions, tax provisions specifically drafted to address the taxation of digital tokens are still quite rare, meaning that existing orthodox tax rules will have to be applied. However, care must be taken when applying tax provisions and one must be aware of the limits of "reasoning by analogy".Some tax provisions make reference to specific assets or asset classes and it cannot be assumed that digital tokens which look very similar to these assets will inevitably fall under those provisions. For example, no matter how much a digital payment token looks …

Incentivizing Innovation, Xuan-Thao Nguyen, Jeffrey A. Maine

Articles

This Article advocates for a new approach to incentivizing innovation through the design of ex post tax incentives for research and development (R&D) investment. In contrast to many nations, the United States relies largely on ex ante tax incentives, namely a tax deduction and tax credit for qualified R&D spending. Fundamental design flaws exist with these ex ante incentives; moreover, innovation occurs continuously and yields results at the back end of the innovation cycle. An appropriate framework should take into consideration the key players in the innovation landscape. These players are often treated differently under the tax laws such that …

World Tax Policy In The World Tax Polity? An Event History Analysis Of Oecd/G20 Beps Inclusive Framework Membership, Shu-Yi Oei

Faculty Scholarship

The last decade has seen the emergence of a new global tax order spearheaded by the OECD and G20 and characterized by increased multilateral consensus and cooperation. This new order appears to reflect the emergence of a new “world tax polity” with shared structures, practices, and norms, which have been shaped through the work of the OECD, G20, and other global actors. But what are the pathways by which this new world tax polity has emerged?

Using event history regression methods, this Article investigates this question by studying membership in the OECD/G20 BEPS Inclusive Framework, a multilateral tax agreement among …

Cryptocurrency, Legibility, And Taxation, Amanda Parsons

Publications

In Jarrett v. United States, a taxpayer in Tennessee is arguing that staking cryptocurrency did not result in him earning “income” under federal income tax law. This case illustrates the fundamental challenge that cryptocurrency and blockchain technology present for tax law. Wealth creation in the crypto space is not readily legible to the state. This absence of legibility threatens tax law’s reliance on placing economic activities into categories to determine how they should be taxed. Furthermore, this case highlights the harms Congress and Treasury are risking by not taking action on cryptocurrency taxation. The uncertainty and lack of guidance on …

Taxing Creativity, Jeffrey A. Maine

Faculty Publications

The recent sell offs of song catalogs by Bob Dylan, Stevie Nicks, Neil Young, and Mick Fleetwood for extraordinarily large sums of money raise questions about the law on creativity. While patent and copyright laws encourage a wide array of creative endeavors, tax laws governing monetization of creative works do not. The Songwriters Capital Gains Equity Act, in particular, solidifies creativity exceptionalism, exacerbates tax inequities among creators, and perpetuates racial disparities in the tax Code. This Article asserts that the law must encourage creativity from all creators. It is time to eliminate tax exceptionalism for musical compositions or expand its …

The Parallel March Of The Ginis: How Does Taxation Relate To Inequality, And What Can Be Done About It?, Reuven S. Avi-Yonah

Articles

The United States currently has one of the highest levels of inequality among industrialized economies. In addition, numerous scholars have shown that social mobility in the United States is significantly lower than it was in the period between 1945 and 1970, when inequality was declining. The combination of these trends is dangerous because it risks transforming the United States into a society where small elites capture most of the gains, a pattern in which growth cannot be sustained over time. The level of inequality in the United States after taxes and transfers are taken into account is much lower, but …

The Taxation Of Cryptocurrency Gains, Vincent Ooi

Research Collection Yong Pung How School Of Law

Taking Singapore as an example, this article lays out a series of tests for determining whether gains arising from the disposal of cryptocurrencies are trade or business income, “all other income” or capital gains. It also considers the possibility of a presumption that individuals engaging in such transactions are gambling.

Reframing Taxigration In The Search For Tax Justice, Jacqueline Lainez Flanagan

Journal Articles

The Search for Tax Justice is a Tax Notes State series examining the inequities inherent in state and federal taxes. In this installment, Jacqueline Laínez Flanagan, associate professor of law and director of the University of the District of Columbia’s David A. Clarke School of Law Tax Clinic, discusses tax challenges faced by immigrants and responds to myths about the undocumented taxpayer community.

Marijuana Taxation: Theory And Practice, Benjamin Leff

Articles in Law Reviews & Other Academic Journals

Marijuana legalization creates a host of complex legal problems, not the least of which is how to best tax the emerging legal market. This Essay attempts to bridge the gap between tax theory and marijuana policy to make some modest claims. First, it roots the discussion of state-level marijuana taxation in the theoretical distinction between ordinary revenue-raising taxes and "Pigouvian" or regulatory taxes. It makes the somewhat controversial claim that the best taxing strategy for states is to attempt to capture as much of the marijuana legalization premium as possible without driving consumers into the illegal market and that other …

Decoupling State Income Tax From Federal: Current Taxation Of Unrealized Gain, The New York Proposal, Henry Ordower

All Faculty Scholarship

A proposal decouples NY from federal tax computations to tax billionaires on unrealized appreciation. If enacted, the proposal generates basis discontinuities across borders but enhances state revenue and may prove attractive to many states. The article reviews how states seek to enhance revenues and considers issues of cross-border taxation and the fundamental right to travel.

New York’S Proposed Mark-To-Market Tax Decouples From Federal Tax, Henry Ordower

All Faculty Scholarship

A proposal decouples NY from federal tax computations to tax billionaires on unrealized appreciation. If enacted, the proposal generates basis discontinuities across borders but enhances state revenue and may prove attractive to many states. The article reviews how states seek to enhance revenues and considers issues of cross-border taxation and the fundamental right to travel.