Law Commons^™

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 …

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 …

Taxation And The Constitution, Reconsidered, David Gamage, John R. Brooks

Faculty Publications

Our current income tax is unable to address growing concentrations of financial wealth and resulting economic inequality. But reforms to address these problems—such as a wealth tax or an income tax on unrealized capital gains—are stymied by fears of unconstitutionality. The basic claim is that wealth taxes and similar reforms are “direct taxes” under the Apportionment Clauses of the Constitution, and since apportionment is not feasible, these taxes are impossible. But this claim is wrong.

This Article shows that there is in fact a long history of federal taxes similar to wealth taxes—both apportioned and uniform—and a well-developed constitutional tax …

Taxing Choices, Tessa R. Davis

Faculty Publications

Tax has a choice problem. At all stages of the making of tax, choice plays a role. Lawmakers consider how tax will impact the range and appeal of choices available to an individual. Scholars critique how tax may drive an individual toward or away from a given choice. Courts craft stories of how an individual had either free or deeply constrained choice, using their perception of the facts to guide their interpretation of tax law. And yet for all the seeming relevance of choice to tax, we have no clear definition of what we mean when we talk about choice …

The Inequity Of Informal Guidance, Joshua D. Blank, Leigh Z. Osofsky

Faculty Publications

The coexistence of formal and informal law is a hallmark feature of the U.S. tax system. Congress and the Treasury enact formal law, such as statutes and regulations, while the Internal Revenue Service offers the public informal explanations and summaries, such as taxpayer publications, website frequently asked questions, virtual assistants, and other types of taxpayer guidance. Throughout the COVID-19 pandemic, the IRS increased its use of informal law to help taxpayers understand complex emergency relief rules implemented through the tax system.

In contrast to many other legal scholars who have examined important administrative law issues regarding informal tax guidance, in …

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 …

Tax Issues Affecting Marijuana Businesses, Erik M. Jensen

Faculty Publications

This article considers several issues affecting Internal Revenue Code section 280E, which denies income-tax deductions and credits to businesses trafficking in controlled substances. Even though marijuana is legal in an increasing number of states, it remains a controlled substance under federal law and section 280E therefore applies to marijuana businesses. As a result, investing in a marijuana business is much less attractive than it would otherwise be. The article discusses issues of statutory interpretation but, more important, considers whether an almost complete denial of deductions and credits converts what is in form an income tax into something else. If the …

The Charitable Continuum, Eric Kades

Faculty Publications

There are powerful fairness and efficiency arguments for making charitable donations to soup kitchens 100% deductible. These arguments have no purchase for donations to fund opulent church organs, yet these too are 100% deductible under the current tax code. This stark dichotomy is only the tip of the iceberg. Looking at a wider sampling of charitable gifts reveals a charitable continuum. Based on sliding scales for efficiency, multiple theories of fairness, pluralism, institutional competence and social welfare dictate that charitable deductions should in most cases be fractions between zero and one. Moreover, the Central Limit Theorem strongly suggests that combining …

Democracy Avoidance In Tax Lawmaking, Clint G. Wallace

Faculty Publications

The Tax Cuts and Jobs Act was the most significant tax law in more than three decades, but the strategy for getting it enacted included a variety of maneuvers to avoid public scrutiny. As a result, many taxpayers did not know how they would be affected until they filed their own tax returns more than a year later. This Article identifies this lack of transparency as part of a persistent pathology of avoiding and constraining democratic inputs and responsiveness in U.S. federal tax lawmaking. Indeed, some scholars and policy makers have sought to channel tax lawmaking away from democratically grounded …

Wage Enslavement: How The Tax System Holds Back Historically Disadvantaged Groups Of Americans, David Gamage, Goldburn P. Maynard Jr.

Faculty Publications

Despite the importance placed on equality of opportunity within United States political culture, the existing tax system inhibits historically disadvantaged groups from building wealth or catching up with historically more privileged groups. This effectively then traps many members of historically disadvantaged groups into a continued cycle of dependence on tax-disfavored wage and salary income, a phenomenon that we metaphorically label as “wage enslavement.” This Article explains this phenomenon and then calls for reform.

Wealth Transfer Tax Planning After The Tax Cuts And Jobs Act, Jeffrey A. Maine, John A. Miller

Faculty Publications

On December 17, 2017, Congress passed the Tax Cuts and Jobs Act (TCJA). Among its many impacts, the TCJA increased the inflation-adjusted estate tax basic exclusion amount to $10,000,000 on a temporary basis. This has dramatic implications for many existing and future estate plans, including a major crossover impact on income tax planning. In this Article, we explain the operation of the federal wealth transfer taxes (the estate tax, the gift tax, and the generation skipping transfer tax) in the wake of the TCJA and dissect the basic tax planning techniques for wealth transmission. The overall design of this Article …

Tax Policy And Our Democracy, Clint Wallace

Faculty Publications

No abstract provided.

A Tax On The Clones: The Strange Case Of Bitcoin Cash, Eric D. Chason

Faculty Publications

No abstract provided.

Equitable Health Savings Accounts, Samuel Estreicher, Clinton G. Wallace

Faculty Publications

This Article offers the first comprehensive legal-policy critique of existing Health Savings Accounts (HSAs), arguing that the current approach is redistributively regressive, thus exacerbating inequality, and also fails to accomplish stated healthcare goals. We propose an alternative—Equitable Health Savings Accounts—which uses cash grants as a tool to address both of these problems. Equitable HSAs are a market-based social program that calibrates size and delivery of a government subsidy to help the least well off and to facilitate participation in healthcare markets. Equitable HSAs can serve as a model for using cash grants to bridge the gap between Republican social policy …

Cryptocurrency Hard Forks And Revenue Ruling 2019-24, Eric D. Chason

Faculty Publications

No abstract provided.

Of Piketty And Perpetuities: Dynastic Wealth In The Twenty-First Century (And Beyond), Eric Kades

Faculty Publications

For the first time since independence, in a nation founded in large part on the rejection of a fixed nobility determined by birth and perpetuated by inheritance, America is paving the way for the creation of dynastic family wealth. Abolition of the Rule Against Perpetuities in over half the states along with sharp reductions in, and likely elimination of, the federal estate tax mean that there soon will be no obstacles to creating large pools of dynastic wealth insuring lavish incomes to heirs for generations without end. The timing of these legal changes could hardly be worse. Marshaling innovative economic …

A Human Capital Theory Of Alimony And Tax, Tessa R. Davis

Faculty Publications

The current taxation of alimony is a broken scheme. Severed from any strong theoretical mooring, it draws lines in the sand between property settlement, child support, and alimony. The lack of coherence between the substance of alimony in family law and the tax concept of alimony (“tax alimony”) could be justified on other policy grounds, however. Yet current law, which allows the payor a deduction under §215 and requires inclusion by the recipient per §71, is difficult to interpret, resulting in frequent litigation and costly noncompliance. In short, the current concept of tax alimony fails to satisfy any of the …

The Natural Property Rights Straitjacket: The Takings Clause, Taxation, And Excessive Rigidity, Eric Kades

Faculty Publications

Natural property rights theories have become the primary lens through which conservative jurists and scholars view the Constitution’s main property rights provision, the Takings Clause. One of their most striking arguments is that progressive income taxation — applying higher tax rates to higher incomes — is an unconstitutional taking of wealthy taxpayers’ property. This has become part and parcel of well-established battle lines between conservative property rights advocates and their liberal counterparts. What has gone unnoticed is that the very same argument deployed against progressive taxation also deems regressive taxation — applying lower tax rates to higher incomes — an …

Centralized Review Of Tax Regulations, Clinton G. Wallace

Faculty Publications

Centralized oversight of agency policymaking and spending by the President’s Office of Management and Budget is a hallmark of the modern administrative state. But tax regulations have almost never been subject to centralized review. The Trump administration recently proposed to require centralized review of tax regulations, but it is unclear what regulations would be subject to such review or how it would be conducted.

This Article examines the normative desirability of the longstanding approach of exempting tax regulations from centralized review, and the alternative of imposing such review. Scholars and policymakers have provided various incomplete justifications for excepting tax policy …

Taxing Systemic Risk, Eric D. Chason

Faculty Publications

A tax on the harmful elements of finance—a tax on systemic risk—would raise revenue and also lower the likelihood of future crisis. Financial institutions, which pay the tax, would try to minimize its cost by lowering their systemic risk. In theory, a tax on systemic risk is perfect policy. In practice, however, this perfect policy is unattainable. Tax laws need clear definitions to be administrable. Our current understanding of systemic risk is too abstract and too metaphorical to serve as a target for taxation.

Despite the absence of a clear definition of systemic risk, academics and policy makers continue to …

Congressional Control Of Tax Rulemaking, Clint Wallace

Faculty Publications

The notice and comment process is often touted as a mechanism for establishing political accountability, and providing a check on agency decision-making. Based on a survey of three years of recently proposed tax regulations, this Article shows that many notice-and-comment processes for tax regulations have been ineffective for these purposes. Fully one-third of the time, no one participated. The few participants there are have been heavily weighted towards private interests, which commented on approximately two-thirds of all proposed regulations from 2013 through 2015. In contrast, public interest groups commented on less than 24% of proposed regulations. If the notice and …

Tax And Social Context: Legal Fictions And Tax, Tessa R. Davis

Faculty Publications

No abstract provided.

The Tax-Immigration Nexus, Tessa R. Davis

Faculty Publications

Tax and immigration law have a shared interest in defining community. In order to implement a tax, we must know who belongs to the taxable community. At the same time, immigration law must define and administer the requirements for membership in the national community. Despite the differing objectives of tax and immigration law—raising revenue and deciding who may enter, remain, and become a citizen in the United States, respectively—both of these regimes uses a concept of citizenship to define their respective communities. Starting from this common thread of the relevance of citizenship to both immigration and tax law, this Article …

Giving Credit Where Credit Is Due: Reducing Inequality With A Progressive State Tax Credit, Eric Kades

Faculty Publications

No abstract provided.

Taxing Losers, Eric D. Chason

Faculty Publications

The U.S. tax system, like most in the world, benefits capital gains in two ways. Investors can defer paying tax until they "realize" any gain (typically by sale) rather than when the gain simply occurs via rising prices. Additionally, individual investors pay a lower, preferred rate on their long-term capital gains as compared to their other ordinary income (such as compensation or business profits).

However, investors face a burden with respect to their capital losses. Rather than allowing for unlimited capital loss deductions, the Code largely forces investors to match their capital losses against their capital gains. Limits on capital …

Branding Taxation, Jeffrey A. Maine, Xuan-Thao Nguyen

Faculty Publications

Branding is important not only to businesses,but also to the economy. The intellectual property laws and tax laws should thus further the legitimate goals of encouraging and protecting brand investments while maintaining a sound tax base. Intellectual property protections for branding depend on advertisement and enforcement, both of which demand significant amounts of private investment by firms. Although one would expect similar tax treatments of both categories of investment, the categories are actually treated as vastly different for federal income tax purposes. Additionally, tax distinctions also exist within each category. The result is that some branding investments are expensed and …

Equitable Anti-Junction Act, The, Erin Morrow Hawley

Faculty Publications

The (AIA or the Act) has never been more important. Originally enacted to expedite the collection of revenue-raising taxes, courts and scholars have for years assumed that the statute imposes a jurisdictional bar on any pre-enforcement challenge to a tax. On this interpretation, taxpayers subject to an invalid tax have two choices only: comply or pay the tax and pursue a refund. Read this way, the Act is a marked departure from the general rule that pre-enforcement challenges are permissible so long as justiciability requirements are met. And it imposes a marked burden on aggrieved taxpayers that grows all the …

Jurisdictional Question In Hobby Lobby, The, Erin Morrow Hawley

Faculty Publications

Burwell v. Hobby Lobby Stores may well be the biggest case of the term. And by its own rules, the Supreme Court lacked jurisdiction. An obscure statute, the Anti-Injunction Act of 1867 (“the AIA”), imposes a pay-first requirement for federal tax challenges. The deeply held conventional wisdom is that the AIA is a jurisdictional statute, and there is a good argument that the AIA applies to the contraception mandate. As we learned from National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566 (2012), the best evidence of whether Congress intended the AIA to apply is the text. The mandate …

Evaluating Trickle Down Charity, Matthew Rossman

Faculty Publications

As our nation's philanthropic sector becomes more entrepreneurial, ambitious and influenced by the private sector, longstanding legal standards on what constitutes “charity” struggle to stay relevant. More and more often, organizations that seek classification by the Internal Revenue Service as a Section 501(c)(3) charity (and the substantial public subsidy that this status unlocks) are not the soup kitchens and homeless shelters of yesteryear, but highly sophisticated ventures which accomplish their missions in ways that are less obviously charitable. In no case is this more true than in the recent widespread emergence of nonprofit organizations whose primary activity is providing direct …

Bad Tax Shelters - Accountability Of The Lack Thereof: Ten Years Of Tax, Jacob L. Todres

Faculty Publications

In the 1990’s and early 2000’s the tax landscape in the United States was overrun by an epidemic of tax shelters that was unprecedented. The shelters were designed and sold by seemingly reputable large accounting and law firms. The same shelters were sold to many taxpayers. They became generic, off-the-shelf, products. However, the tax shelters had no business substance. The shelters were eventually found to be invalid by the courts. In light of the invalidity of the shelters, the large fees paid for the shelters and the large damages caused by participating in the invalid shelters, there were predictions that …