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Full-Text Articles in Law
Unregulated Charity, Eric Franklin Amarante
Unregulated Charity, Eric Franklin Amarante
Washington Law Review
The vast majority of charities in the United States operate in a regulatory blind spot: they are neither meaningfully evaluated when they apply for charitable status nor substantively monitored after they receive charitable status. Driven by severe budget constraints, the IRS decided to essentially ignore any charity that claims it will realize less than $50,000 in annual gross receipts. From a practical perspective, the IRS’s decision makes sense. To the extent smaller charities are less likely to cause harm, it is reasonable (perhaps even preferable) to subject them to less scrutiny. This type of prioritization, known as risk-based regulation, has …
Taxing Selling Partners, Emily Cauble
Taxing Selling Partners, Emily Cauble
Washington Law Review
When a partner sells a partnership interest, the resulting gain or loss is treated as capital gain or loss, except to the extent that the partnership holds certain items whose sale would result in gain or loss that was not capital. Seemingly, the purpose of this regime is to prevent taxpayers from obtaining more favorable treatment by selling an interest in a partnership than what would result if the partnership were to sell its underlying assets. But given this legislative aim, the existing tax provisions produce results for taxpayers that are both unduly favorable (in that sale of a partnership …
Head In The Clouds, Head In The Sand: Federal Failure To Update Guidance On Computer Transaction In An International Context, Logan S. Weaver
Head In The Clouds, Head In The Sand: Federal Failure To Update Guidance On Computer Transaction In An International Context, Logan S. Weaver
Washington Law Review
The United States has two different rationales for taxing income of non-U.S. persons and entities. First, the income may be “sourced” to the United States, as defined in the Internal Revenue Code. Alternatively, the income may be effectively connected to a trade or business within the United States that provides income to the non-U.S. person or entity. The sourcing rules for income of non-U.S. persons and entities depend heavily on the nature of the underlying transaction and the geographical location where certain key elements of the transaction take place. So long as the non-U.S. person or entity avoids activities that …
Pre-Enforcement Litigation Needed For Taxing Procedures, Stephanie Hunter Mcmahon
Pre-Enforcement Litigation Needed For Taxing Procedures, Stephanie Hunter Mcmahon
Washington Law Review
Courts have opened tax guidance to procedural attack. Consequently, taxpayers who are found to owe tax may challenge the validity of the guidance implementing the tax if the procedure used by the Treasury Department in adopting the guidance failed to comply with the Administrative Procedure Act, in particular, with notice-and-comment. This increased willingness to consider tax guidance’s procedural defects offers little to most taxpayers unless they are also given a better means to raise procedural challenges. Under current law and in most circumstances, generally, taxpayers can bring a challenge only after they have been found to owe taxes in an …
Revisiting The Taxation Of Fringe Benefits, Jay A. Soled, Kathleen Delaney Thomas
Revisiting The Taxation Of Fringe Benefits, Jay A. Soled, Kathleen Delaney Thomas
Washington Law Review
The receipt of workplace fringe benefits has become increasingly ubiquitous. As a result of their employment, employees often receive a cornucopia of fringe benefits, including frequent-flier miles, hotel rewards points, rental car preferred status, office supply dollar coupons, cellular telephone use, home internet service, and, in some instances, even free lunches, massages, and dance lessons. Technological advances and workforce globalization are important contributory factors to the popularity of what were, until the turn of this century, previously unknown fringe benefits. In years past, taxpayers could readily turn to the Internal Revenue Code to ascertain the income tax effects and reporting …
Beyond The Little Dutch Boy: An Argument For Structural Changes In Tax Deduction Classification, Jeffrey H. Kahn
Beyond The Little Dutch Boy: An Argument For Structural Changes In Tax Deduction Classification, Jeffrey H. Kahn
Washington Law Review
One of the most active disputes in tax law today is the question of the proper tax consequences for a successful plaintiff, a portion of whose taxable damage award is paid to his or her attorney pursuant to a contingent fee arrangement. At issue is whether the plaintiff is taxable on the portion of the award that is payable to the attorney. One aspect of this problem was resolved prospectively by the adoption of the American Jobs Creation Act of 2004, but the problem continues to exist in other areas. The United States Supreme Court resolved a split in the …
The Bonds Of Joint Tax Liability Should Not Be Stronger Than Marriage: Congressional Intent Behind § 6015(C) Separation Of Liability Relief, Svetlana G. Attestatova
The Bonds Of Joint Tax Liability Should Not Be Stronger Than Marriage: Congressional Intent Behind § 6015(C) Separation Of Liability Relief, Svetlana G. Attestatova
Washington Law Review
Spouses who file joint tax returns are jointly and severally liable for any resulting tax deficiency. In the past, only innocent spouses—those with no knowledge of the tax understatement—could qualify for relief from such liability. In 1998, Congress expanded existing innocent spouse relief and added two new forms of relief—the separation of liability and discretionary relief provisions. Codified at 26 U.S.C. § 6015(c), separation of liability relief allocates items that give rise to a deficiency to each spouse as if they had filed separate returns, and is only available to spouses who are divorced, separated, or living apart. However, a …
Protecting The Tax-Exempt Status Of Housing Developers Participating In Low-Income Housing Tax Credit Partnershps, Marni Hussong
Protecting The Tax-Exempt Status Of Housing Developers Participating In Low-Income Housing Tax Credit Partnershps, Marni Hussong
Washington Law Review
The Low-Income Housing Tax Credit (LIHTC) is an important source of federal funding for developers of affordable housing for low-income persons. Although for-profit and nonprofit developers compete for credits, the federal government reserves ten percent of the credits for nonprofit, tax-exempt developers. Exempt developers often sell the credits to for-profit investors, forming a partnership through which the exempt organization develops the housing and the investors receive tax benefits in exchange for capital contributions. The partnership formation, however, may jeopardize the tax-exempt status of the nonprofit organizations and result in the partnership losing the LIHTC. To maintain exempt status, the Internal …
Capitalizing The Target's Transaction Costs In Hostile Takeovers, David J. Roberts
Capitalizing The Target's Transaction Costs In Hostile Takeovers, David J. Roberts
Washington Law Review
In A.E. Staley Manufacturing Co. v. Commissioner, the Court of Appeals for the Seventh Circuit held that costs a corporation incurred to resist a hostile takeover were analogous to costs incurred to defend a business against attack and thus qualified as ordinary and necessary business expenses deductible under Internal Revenue Code section 162. Alternatively, the court held that those costs associated with abandoned capital transactions qualified for loss deductions under section 165. This Note argues that although the court reached approximately the right result in this case, its primary reliance on a defense of business rationale for deductibility under …
Sierra Club V. Commissioner And The Royalty Exemption To The Unrelated Business Income Tax: How Much Activity Is Too Much?, Katherine A. Vanye
Sierra Club V. Commissioner And The Royalty Exemption To The Unrelated Business Income Tax: How Much Activity Is Too Much?, Katherine A. Vanye
Washington Law Review
In Sierra Club v. Commissioner, the Ninth Circuit decided that royalties are payments for the right to use intangible property and are by definition "passive." The court applied this definition and held that Sierra Club's income from renting its mailing list was a royalty payment and thus exempt from taxation. This Note argues that while the court reached the correct conclusion, it did not propose a clear standard to guide future cases. Two alternative approaches could be adopted: (1) ancillary versus significant services; or (2) comparative value of property and services. These alternatives will provide clearer guidelines and enable …
Kochanksky V. Commissioner: The Assignment Of Income Doctrine, Community Property Law, And I.R.C. § 1041, Sarah Dods
Kochanksky V. Commissioner: The Assignment Of Income Doctrine, Community Property Law, And I.R.C. § 1041, Sarah Dods
Washington Law Review
In Kochansky v. Commissioner, the Ninth Circuit held that an attorney was fully taxable on a contingent fee he agreed to split with his spouse at divorce, reasoning that the assignment of income doctrine requires that income be taxed to the person who earns it. This Note observes that in applying the assignment doctrine, the Kochansky court erred by failing to determine the extent of the spouse's community property interest in the contingent fee; community property income must be taxed one-half to each spouse, regardless of which spouse earns it, which spouse collects it, and when it is collected. …
Taxing Contingency Fee Attorneys As Investors: Recognizing The Modern Reality, Robert M. Amkraut
Taxing Contingency Fee Attorneys As Investors: Recognizing The Modern Reality, Robert M. Amkraut
Washington Law Review
In the 1995 case of Boccardo v. Commissioner, the Ninth Circuit changed the tax treatment of advances made by attorneys working on contingency fee arrangements. The court held that, in a specific type of contingency fee arrangement, costs paid by an attorney are deductible as ordinary and necessary business expenses. This decision not only challenges assumptions underlying decades of case law and centuries of legal ethical tradition, but it also undermines the tax accounting principle of matching expenses with related income. This Note summarizes the traditional rationales for prohibiting attorneys from deducting such costs and analyzes the Boccardo decision. …
Pro-Choice Taxation: Consistent Tax Treatment Of Stock Redemptions At Divorce, Richard E. Fogg
Pro-Choice Taxation: Consistent Tax Treatment Of Stock Redemptions At Divorce, Richard E. Fogg
Washington Law Review
The Ninth Circuit and the Tax Court have disagreed on the circumstances in which nonrecognition of gain under § 1041 of the Internal Revenue Code may extend to a spouse who redeems stock at divorce. This conflict is representative of a larger problem surrounding the question of which spouse to tax on the redemption of stock incident to divorce. This Comment examines the tension between the policy underlying § 1041 and the temporary regulations, and identifies the tension as the cause of inconsistent judicial decisions. This Comment also proposes an amendment to the Code that provides both certainty to the …
Corporate Redemption In The Context Of Martial Dissolutions: I.R.C. § 1041 And Arnes V. United States, Thomas Monaghan
Corporate Redemption In The Context Of Martial Dissolutions: I.R.C. § 1041 And Arnes V. United States, Thomas Monaghan
Washington Law Review
In Ames v. United States the Ninth Circuit held that Temporary Treasury Regulation § 1.1041-IT, A-9 extended nonrecognition treatment to an ex-wife whose 50 percent interest in a corporation was redeemed pursuant to a divorce settlement, thereby leaving her ex-husband as the sole owner of the corporation. In doing so, the court not only contradicted the precedential treatment of bootstrap stock acquisitions but also misapplied its own interpretation of this regulation. This Note argues that a transaction such as that in Ames falls outside of the scope of the regulation and, therefore, the precedent surrounding bootstrap acquisitions should have controlled.
Taxation Of Punitive Damages: Interpreting Section 104(A)(2) After The Revenue Reconciliation Act Of 1989, Craig Day
Washington Law Review
The Internal Revenue Service and the courts have wavered on whether punitive damages are taxable under the Internal Revenue Code. Just after the Fourth Circuit boldly declared that punitive damages are taxable, Congress amended section 104(a)(2) to tax punitive damages in cases where no physical injury is involved. Neither the courts nor the Internal Revenue Service have answered the question whether punitive damages in cases that do involve physical injury are taxable. This Comment examines the language of the amended statute and the policies leading to its enactment, and proposes that punitive damages be taxed without regard to the nature …
Tax-Free Security: Federal Income Taxation Of Customer Deposits After Commissioner V. Indianapolis Power & Light Co., 110 S. Ct. 589 (1990), Alisa Eid
Washington Law Review
In Commissioner v. Indianapolis Power & Light Co., the Supreme Court held that a taxpayer receiving a customer deposit to secure future payment for goods or services may exclude that deposit from income if the taxpayer obligates itself to refund the deposit and if the customer retains the right to cancel service at any time. Because these conditions characterize virtually all security deposits, the Court's rule will allow taxpayers to exclude most security deposits from income. This Note examines the Court's decision and suggests that the Court's rule should not be extended to any situation where either the obligation to …
Beyond The Fruit Tree: A Proposal For Revision Of The Assignment Of Income Doctrine—Caruth Corp. V. United States, 865 F.2d 644 (5th Cir. 1989), Traci A. Sammeth
Beyond The Fruit Tree: A Proposal For Revision Of The Assignment Of Income Doctrine—Caruth Corp. V. United States, 865 F.2d 644 (5th Cir. 1989), Traci A. Sammeth
Washington Law Review
The Supreme Court developed the assignment of income doctrine to solve the question of who the proper taxpayer is under section 61 of the Internal Revenue Code. The question arises when individuals transfer income that rightly belongs to them without declaring the income for federal tax purposes. The assignment doctrine attributes income, for tax purposes, to the earner or practical owner of the income notwithstanding that person's assignment of the income. However, the Supreme Court's development of the doctrine has been inadequate, as exemplified by the recent decision of the Fifth Circuit Court of Appeals in Caruth Corp. v. United …
A Tax Deduction For Direct Charitable Transfers: The Case Against Davis V. United States, 861 F.2d 558 (9th Cir. 1988), David L. Herron
A Tax Deduction For Direct Charitable Transfers: The Case Against Davis V. United States, 861 F.2d 558 (9th Cir. 1988), David L. Herron
Washington Law Review
Monetary transfers to charitable service providers may be deductible either as charitable contributions or as unreimbursed expenses. Whether a charity must possess the transfer to establish the charity control necessary to effect a charitable deduction is an unresolved issue. Using direct transfers to Mormon missionaries in Davis v. United States as an example, this Note concludes that direct transfers to service providers should be deductible and proposes a test for determining when charity control is sufficient without possession.
Income Taxation Of Distributions Made By Alaska Native Corporations: An Ambiguity In Need Of Clarification, Meade Emory, Robert A. Warden
Income Taxation Of Distributions Made By Alaska Native Corporations: An Ambiguity In Need Of Clarification, Meade Emory, Robert A. Warden
Washington Law Review
In 1971, Congress passed the Alaska Native Claims Settlement Act ("ANCSA") to provide compensation for extinguishing Native land claims in Alaska. ANCSA created a system of village corporations that received money and land as compensation, and are to distribute the compensation to shareholders. The Internal Revenue Service ("IRS"), despite legislative history to the contrary, is now asserting that corporate tax principles apply to the distributions because of ambiguous language contained in ANCSA. This assertion makes distributions to shareholders taxable as dividends to the extent of the corporations' accumulated and current earnings and profits. The IRS stance will result in excessive …
The Taxation Of Prizes And Awards—Tax Policy Winners And Losers, Bruce I. Kogan
The Taxation Of Prizes And Awards—Tax Policy Winners And Losers, Bruce I. Kogan
Washington Law Review
This article evaluates whether the recent emasculation of the exclusion for bona fide public achievement prizes or awards was justified. In order to accomplish the task, the article will begin by setting forth the applicable statutory provisions and tracing their historical development. Second, the policy implications of new section 74(b) will be analyzed in depth. Next, the article will offer an alternative that would effectively deal with the problem of compensatory employer to employee awards, while retaining the long standing policy of using tax incentives to encourage humanitarian or public contribution. The article concludes by arguing that Congress' shift to …
The Taxation Of Prizes And Awards—Tax Policy Winners And Losers, Bruce I. Kogan
The Taxation Of Prizes And Awards—Tax Policy Winners And Losers, Bruce I. Kogan
Washington Law Review
This article evaluates whether the recent emasculation of the exclusion for bona fide public achievement prizes or awards was justified. In order to accomplish the task, the article will begin by setting forth the applicable statutory provisions and tracing their historical development. Second, the policy implications of new section 74(b) will be analyzed in depth. Next, the article will offer an alternative that would effectively deal with the problem of compensatory employer to employee awards, while retaining the long standing policy of using tax incentives to encourage humanitarian or public contribution. The article concludes by arguing that Congress' shift to …
The Alternative Minimum Tax For Individuals: Present Problems And Future Possibilities, Kerry Sean Bucklin
The Alternative Minimum Tax For Individuals: Present Problems And Future Possibilities, Kerry Sean Bucklin
Washington Law Review
This Comment addresses the problems presented by the revised alternative tax. First, the alternative tax is described in the context of the 1986 Tax Reform Act. Second, the new provisions of the alternative tax are analyzed to show that even with them, the alternative tax still does not tax all economic income. Third, the inefficiency and inequitable nature of the alternative tax are examined. Fourth, short and long-term solutions to the current alternative tax problems are proposed.
The Alternataive Minimum Tax For Individuals: Present Problems And Future Possibilities, Kerry Sean Bucklin
The Alternataive Minimum Tax For Individuals: Present Problems And Future Possibilities, Kerry Sean Bucklin
Washington Law Review
This Comment addresses the problems presented by the revised alternative tax. First, the alternative tax is described in the context of the 1986 Tax Reform Act. Second, the new provisions of the alternative tax are analyzed to show that even with them, the alternative tax still does not tax all economic income. Third, the inefficiency and inequitable nature of the alternative tax are examined. Fourth, short and long-term solutions to the current alternative tax problems are proposed.
Divorce, Taxes, And The 1984 Tax Reform Act: An Inadequate Response To An Old Problem, Roland L. Hjorth
Divorce, Taxes, And The 1984 Tax Reform Act: An Inadequate Response To An Old Problem, Roland L. Hjorth
Washington Law Review
This article analyzes in detail the provisions of the 1984 Tax Reform Act relating to property settlements and cash payments made pursuant to divorce. It concludes that the provisions relating to property settlements are, on balance, beneficial, but that the changes relating to alimony and child support are almost totally devoid of merit. The article recommends that sections 71 and 215 be amended to provide that all cash payments made pursuant to divorce should be income to the recipient if those payments meet the formal requirements of new section 71(b). Even if the payments are income to the recipient, however, …
Constitutional Protection For Creative Tax Shelter Promoters: Ninth Circuit Restricts The Government's Arsenal Of Power—United States V. Dahlstrom, 713 F.2d 1423 (9th Cir. 1983), Cert. Denied, 104 S. Ct. 2363 (1984), Beryl N. Simpson
Washington Law Review
In United States v. Dahlstrom, the Ninth Circuit Court of Appeals reversed the criminal tax fraud convictions of five tax advisers. The defendants had been convicted for developing and promoting a program in which a United States taxpayer shifted taxable income to a controlled trust in a tax-haven country. The Ninth Circuit held that, as a matter of law, the promoters of the foreign trust arrangement could not be convicted of counseling fraud because the particular scheme had not yet been declared fraudulent. Through its decision the court has restricted the government's campaign against abusive tax shelters, and placed a …
Sufficiency Of A Separation Agreement For Tax Purposes—Jacklin V. Commissioner, 79 T.C. 340 (1982), Kay Brown
Sufficiency Of A Separation Agreement For Tax Purposes—Jacklin V. Commissioner, 79 T.C. 340 (1982), Kay Brown
Washington Law Review
In Jacklin v. Commissioner, the Tax Court addressed a dispute concerning the deductibility of alimony payments under a separation agreement that did not specify a dollar amount. Under this agreement, the payor spouse was to pay to the recipient spouse whatever funds were necessary to sustain the standard of living which she had previously enjoyed. The court held that this agreement was sufficiently precise under section 71(a)(2) of the Internal Revenue Code to allow the payor spouse to deduct the payments. This Note explores the legal tensions created by the court's decision. It asserts that the decision blurs the line …
Compliance With The New Continuity Of Business Enterprise Regulation, John J. O'Donnell
Compliance With The New Continuity Of Business Enterprise Regulation, John J. O'Donnell
Washington Law Review
Many questions unanswered by the new regulation have already been dealt with in these older forms of continuity of enterprise requirements. This article will discuss the major unanswered questions of the new regulation, examine how the older forms of continuity of enterprise have dealt with such issues, and consider the propriety of applying the older-form decisions to the new reorganization-enterprise continuity regulation. The result will be some guidance, although unfortunately no guaranteed methods, on how to avoid being forced to litigate the validity of the regulation itself.
Federal Income Tax—Amoritization And The Expansion Sports Franchise—First Northwest Industries Of America, Inc. V. Commissioner, 70 T.C. 817 (1978), Roberta Reiff Katz
Federal Income Tax—Amoritization And The Expansion Sports Franchise—First Northwest Industries Of America, Inc. V. Commissioner, 70 T.C. 817 (1978), Roberta Reiff Katz
Washington Law Review
This note will first discuss past taxation practices of professional sports franchises. It will explain the "mass asset theory" as it has been applied to intangible assets outside the sports context and then examine the conflicting positions of the IRS and the Sonics as to the theory's applicability to the expansion franchise. Next, it will discuss the Tax Court's reasons for deciding not to apply the theory in First Northwest and suggest that the Ninth Circuit should similarly conclude that the theory is inappropriate in the context of expansion franchises. Finally, the note will explain the primary problem that results …
Issues In Federal, State, And Tribal Taxation Of Reservation Wealth: A Survey And Economic Critique, Russel Lawrence Barsh
Issues In Federal, State, And Tribal Taxation Of Reservation Wealth: A Survey And Economic Critique, Russel Lawrence Barsh
Washington Law Review
This article will consider the most important Indian tax decisions, comparing the intended results of the decisions in the context of congressional Indian law with their probable economic consequences. Part II briefly reviews the main factors essential for proper economic evaluation of a tax. Part III critically surveys recent law of federal taxation of reservation wealth. Part IV similarly surveys and criticizes decisions regarding state taxation of reservation wealth. Part V offers alternate resolutions for state-Indian taxation disputes. In Part VI, the article proposes a framework for applying tax economics productively to the problem of meeting tribal revenue needs.
The Feasibility Of Adjusting For Inflation In Computing Taxable Income, Dwight Drake
The Feasibility Of Adjusting For Inflation In Computing Taxable Income, Dwight Drake
Washington Law Review
This Comment discusses the effect inflation (and deflation) has upon the measurement of taxable income, concluding, in short, that the present standard of measuring income for income tax purposes would be much more equitable if, instead of focusing solely upon the number of dollars received, it accounted for changes in the value of the dollar (as measured by a price index or price indices) by considering the purchasing power of the dollars received. In times of high inflation and in more stable times as well, this new standard for measuring taxable income would have a profound impact on the relative …