Law Commons^™

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 …

Income Inequality, Progressive Taxation And Tax Expenditures, James R. Hines Jr.

Book Chapters

There are important and growing concerns about income inequality in the United States and other high-income countries. These concerns reflect rising apprehension about the political and social consequences of inequality and worries that the advance of technology, expanding international trade and investment, and other economic developments may have significantly widened income gaps in recent decades and will continue to do so in the future. In the United States, these concerns have prompted renewed calls for political activism and vigorous searches for policy measures that might improve the relative economic positions of low- and middle-income Americans.

There are many ways in …

Does Capital Bear The U.S. Corporate Tax After All? New Evidence From Corporate Tax Returns, Edward Fox

Articles

This article uses U.S. corporate tax return data to assess how government revenue would have changed if, over the period 1957–2013, corporations had been subject to a hypothetical corporate cash flow tax—that is, a tax allowing for the immediate deduction of investments in long-lived assets like equipment and structures—rather than the corporate tax regime actually in effect. Holding taxpayer behavior fixed, the data indicate actual corporate tax revenue over the most recent period (1995–2013) differed little from that under the hypothetical cash flow tax. This result has three important implications. First, capital owners appear to bear a large fraction of …

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 S. Avi-Yonah, Lily Batchelder, J. Clifton Fleming, Daniel Hemel, Mitchell Kane, David Miller, Daniel Shaviro, Manoj Viswanathan

Articles

The 2017 tax legislation brought sweeping changes to the rules for taxing individuals and business, the deductibility of state and local taxes, and the international tax regime. The complex legislation was drafted and passed through a rushed and secretive process intended to limit public comment on one of the most consequential pieces of domestic policy enacted in recent history. This Article is an effort to supply the analysis and deliberation that should have accompanied the bill’s consideration and passage, and describes key problem areas in the new legislation. Many of the new changes fundamentally undermine the integrity of the tax …

Legislation And Comment: The Making Of The § 199a Regulations, Shu-Yi Oei, Leigh Osofsky

Faculty Scholarship

In 2017, Congress passed major tax legislation at warp speed. After enactment, it fell to the Treasury Department to write regulations clarifying and implementing the new law. To assure democratic legitimacy in making regulations, administrative law provides that an agency must issue a notice of proposed rulemaking, followed by an opportunity for the public to comment (so-called “notice and comment”). But, after the 2017 tax overhaul, many sophisticated actors did not wait until the issuance of a notice of proposed rulemaking to comment, instead going to the Treasury Department immediately with comments designed to influence the regulations.

In this Article, …

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 …

State Responses To Federal Tax Reform: Charitable Tax Credits, David Gamage, Joseph Bankman, Jacob Goldin, Daniel Hemel, Darien Shanske, Kirk J. Stark, Dennis J. Ventry Jr., Manoj Viswanathan

Articles by Maurer Faculty

This paper summarizes the current federal income tax treatment of charitable contributions where the gift entitles the donor to a state tax credit. Such credits are very common and are used by the states to encourage private donations to a wide range of activities, including natural resource preservation through conservation easements, private school tuition scholarship programs, financial aid for college-bound children from low-income households, shelters for victims of domestic violence, and numerous other state-supported programs. Under these programs, taxpayers receive tax credits for donations to governments, government-created funds, and nonprofits.

A central federal income tax question raised by these donations …

Tax Treatment Of A Marijuana Business, Douglas A. Kahn, Howard Bromberg

Articles

Currently, twenty-eight states and the District of Columbia allow the use of marijuana for medical purposes and permit the conduct of a business marketing of marijuana for that purpose. Eight of those states and the District of Columbia permit the recreational use of marijuana. There is reason to believe that more states will decriminalize the marketing of marijuana. However, marijuana is listed in Schedule 1 of the federal Controlled Substances Act of 1970 (CSA) which makes it illegal under federal law to manufacture or distribute marijuana even when it is legal to do so under local state law. In a …

Sales Between A Partnership And Non-Partners, Douglas A. Kahn

Articles

The code denies a deduction for a loss recognized on a sale or exchange between certain related parties. Two of the principal code sections that deny a deduction in that circumstance are sections 267(a)(1) and 707(b)(1)(A). Two regulatory provisions promulgated under section 267 apply the denial of a loss deduction rule to partnerships — reg. section 1.267(b)-1(b) and temp. reg. section 1.267(a)-2T(c), Question 2. I conclude that to the extent reg. section 1.267(b)-1(b) applies to section 267(a)(1), it is invalid and has been invalid since 1986. Also, two of the questions and answers in the temporary regulation are invalid.

Contribution Of A Built-In Loss To A Partnership, Douglas A. Kahn

Articles

Before 2004, it was possible to use the partnership tax provisions of the code to shift the benefit ofa loss deduction for a decline in property valuefrom the person who incurred it to another person.One method of accomplishing that goal involvedthe contribution of depreciated property to a partnership.

The Case For Dividend Deduction, Reuven S. Avi-Yonah, Amir C. Chenchinski

Articles

The December 2010 compromise between President Barack Obama and the Republicans extended the 15% tax rate on dividends through the end of 2012. At that point, however, the rate may revert to the Clinton administration rate-39.6%-or be raised to 20%-as proposed by the Obama Administration. Thus, the United States may either abandon corporate-shareholder integration, maintain partial integration, or perhaps even adopt the George W Bush administration's 2003 proposal to exempt dividends altogether-as advocated by some Republicans in Congress. Given this uncertainty and the likelihood of additional Congressional action, now may be a good time to revisit the integration issue. Another …

The Loophole That Would Not Die: A Case Study In The Difficulty Of Greening The Internal Revenue Code, Lawrence A. Zelenak

Faculty Scholarship

Congress and the Treasury have commissioned the National Academy of Sciences (NAS) “to undertake a comprehensive review of the Internal Revenue Code of 1986 to identify the types of and specific tax provisions that have the largest effects on carbon and other greenhouse gas emissions and to estimate the magnitude of those effects.” The hope of the proponents of the NAS carbon audit is that Congress, once informed of the results of the audit, will respond by “greening” the Internal Revenue Code. This Essay cautions that a more environmentally friendly Code will not necessarily follow from the legislative consciousness-raising of …

It Is Logic Rather Than Whom You Trust: A Rejoinder To Prof. Cohen, Douglas A. Kahn

Articles

This article is the continuation of an exchange that has taken place between Prof. Stephen B. Cohen and me concerning the validity of criticisms leveled by Chief Justice John Roberts on an opinion by then-Judge Sonia Sotomayor writing for the Second Circuit in the case of William L. Rudkin Testamentary Trust v. Commissioner. While affirming the Second Circuit’s decision, Chief Justice Roberts, writing for a unanimous Supreme Court, criticized and rejected Justice Sotomayor’s construction of the relevant statutory provision. In an article in the August 3, 2009, issue of Tax Notes, Cohen defended Justice Sotomayor’s construction of the statute and …

The Attack On Nonprofit Status: A Charitable Assessment, James R. Hines Jr., Jill R. Horwitz, Austin Nichols

Articles

American nonprofit organizations receive favorable tax treatment, including tax exemptions and tax-deductibility of contributions, in return for their devotion to charitable purposes and restrictions not to distribute profits. Recent efforts to extend some or all of these tax benefits to for-profit companies making social investments, including the creation of the new hybrid nonprofit/for-profit company form known as the Low-Profit Limited Liability Company, threaten to undermine the vitality of the nonprofit sector and the integrity of the tax system. Reform advocates maintain that the ability to compensate executives based on performance and to distribute profits when attractive investment opportunities are scarce …

Reforming 501(C)(3): Putting The "Charity" Back In The Charitable Deduction, Jennifer Mccrabb Black

Law Student Publications

This paper seeks to lay out a proposal to redefine what it takes to receive tax-deductible donations. Part II of this paper will summarize the current state of the law as it applies to the charitable contribution deduction and the qualification for tax exemption under the Internal Revenue Code. Part III discusses the Charities Act 2006, a recent British act aimed at attempting to redefine charity for England and Wales by requiring organizations to prove that they provide a public benefit before receiving the benefits of being a charity. Part IV proposes additions and changes to the Internal Revenue Code …

Rudkin Testamentary Trust -- A Response To Prof. Cohen, Douglas A. Kahn

Articles

In the August 3 issue of Tax Notes, Prof. Stephen Cohen wrote an article about Justice Sonia Sotomayor’s opinions in three tax cases. Of those three cases, only the opinion she wrote in William L. Rudkin Testamentary Trust v. Commissioner, 467 F.3d 149 (2d Cir. 2006), Doc 2006- 21522, 2006 TNT 203-4, is worthy of comment. Although the Second Circuit’s decision in that case was affirmed by the Supreme Court under the name Knight v. Commissioner, the construction of the critical statutory language that Justice Sotomayor adopted was rejected and criticized by Chief Justice Roberts, writing for a unanimous court. …

Obama's International Tax Plan: A Major Step Forward, Reuven S. Avi-Yonah

Articles

President Barack Obama last week personally introduced a set of proposals to reform U.S. international taxation that are the most significant advance toward preserving the income tax on cross-border transactions since the enactment of the subpart F rules by the Kennedy administration in 1962. (For prior coverage, see Doc 2009-10047 or 2009 TNT 84-1.) In essence, the Obama proposals introduce a 21stcentury version of the vision begun by Thomas Adams in 1918 and continued by Stanley Surrey in 1961: a world in which source and residence taxation are coordinated so as to achieve the underlying goals of the international tax …

Elimination Of The Deduction For Business Entertainment Expenses, Richard L. Schmalbeck, Jay A. Soled

Faculty Scholarship

The proposal is offered as a part of the Shelf Project, a collaboration by tax professionals to develop and perfect proposals to help Congress when it needs to raise revenue. Shelf Project proposals are intended to raise revenue without raising tax rates because the best systems have taxes that are unavoidable to reach the lowest feasible tax rates.

This proposal would deny deductions for all business entertainment expenses. Also, the definition of the term ‘‘entertainment’’ would be narrowed so that expenses that are incurred in a clear business setting and are deeply rooted in producing immediate income or in mining …

Cancellation-Of-Indebtedness Income And Transactional Accounting, Lawrence A. Zelenak

Faculty Scholarship

More than three-quarters of a century after the Supreme Court’s decision in United States v. Kirby Lumber established that the cancellation of a debt produces taxable income, there is still uncertainty - both in the courts and among commentators - concerning the rationale for the taxation of cancellation-of-debt (COD) income. Is the taxation of COD income based on the simple fact that the cancellation of a debt improves the taxpayer’s balance sheet, thus increasing the taxpayer’s net worth in the year of cancellation? Or is it based on a multi-year perspective, in which inclusion of the cancelled debt in income …

Tax Consequences When A New Employer Bears The Cost Of The Employee's Terminating A Prior Employment Relationship, Douglas A. Kahn, Jeffrey H. Kahn

Articles

The next few months will be busy ones for moving companies that have NCAA basketball coaches as customers. In the past few months, several men's college basketball coaches have accepted jobs at different schools. Several of those coaches, who were still under contract at their former institution, had buy out provisions that allowed them to terminate their relationship for a set price. John Beilein is a prominent example of this since his buy out price was so high. Last season, Beilein was the head basketball coach at West Virginia University where he was under contract with the school until 2012. …

Prevention Of Double Deductions Of A Single Loss: Solutions In Search Of A Problem, Douglas A. Kahn, Jeffrey H. Kahn

Articles

In the current tax system, a corporation is treated as a separate taxable entity. This tax system is sometimes referred to as an entity tax or a double tax system. Since a corporation is a separate and distinct entity from its owners, the shareholders, the default rule is that transfers between them are treated as realization events. Without a specific Internal Revenue Code (Code) provision providing otherwise, such transactions will also require the parties to recognize the realized gain or loss. Congress has enacted several nonrecognition corporate provisions when forcing the recognition of income could prevent changes to the form …

Gifts, Gafts And Gefts: The Income Tax Definition And Treatment Of Private And Charitable 'Gifts' And A Principled Policy Justification For The Exclusion Of Gifts From Income, Douglas A. Kahn, Jeffrey H. Kahn

Articles

Gifts have been given special treatment by the income tax laws since the first post-16th Amendment tax statute was adopted in 1913. The determination of how the income tax law should treat gifts raises a number of issues. For example: should gifts be given special treatment? If so, what should qualify as a gift? Should gifts to a private party be taxable to the donee? Should gifts to a private party be deductible by the donor? Should the donee's basis in a gift of property be determined by reference to the basis that the donor had, and should any modifications …

Tax Policy And Panda Bears, Douglas A. Kahn, Jeffrey S. Lehman

Articles

In this article. Professors Kahn and Lehman argue that the concept of tax expenditure is flawed as a tool for measuring the propriety of tax provisions. It assumes the existence of on true and correct standard of federal income taxation that applies to all circumstances. To make that a assumption, the proponents of the concept implicitly make a particular moral claim about the relative importance of a wide range of values, including efficiency, consumption/savings neutrality, privacy, distributional equity, administrabiliy, charity, and pragmatism. They then measure a tax provision's "normalcy" exclusively by how it conforms to their Platonic concept of income. …

Tax Expenditure Budgets: A Critical View, Douglas A. Kahn, Jeffrey S. Lehman

Articles

During the past few months, Tax Notes has featured an extended discussion about the "normalcy" (or lack thereof) of accelerated depreciation. Two contributions to that discussion came from Professor Calvin Johnson of the University of Texas Law School, who disagreed with certain aspects of an article that Professor Kahn wrote in 1979. And the debate shows no sign of slowing down. The interchange over the details of accelerated depreciation offers a useful backdrop against which to consider a more general issue: the intellectual coherence of the tax expenditure budgets. The larger concept of tax expenditures was what motivated Kahn to …

Disparate Tax Treatment Of Different Types Of Business Organizations: Where Should We Go From Here?, Douglas A. Kahn

Articles

If several persons wish to join together in a common enterprise in order to pool their capital or labor or some of each, they may choose among a variety of available organizational structures that will serve that purpose. The most common entity forms are partnerships (including joint ventures), corporations, and trusts. While, in its typical structure, each of those entity forms has its own distinct characteristics, the structure of such organizations often is modified by agreement so as to adopt attributes of another type of entity. Because of this, the substantive distinction between entity types is blurred.

The Funding Of Children's Educational Costs, Douglas A. Kahn

Articles

A plan for reduction of educational costs should take federal transfer taxes into account. The method chosen for reducing income tax liability usually will involve making gifts. To the extent that it is convenient to do so, the transfer tax consequences of making such gifts should be minimized. This article will examine the estate and gift tax consequences of the income tax reduction arrangements described herein and will consider means of structuring the transactions so as to minimize those consequences.

Child Care, Work, And The Federal Income Tax, Brian Wolfman

Georgetown Law Faculty Publications and Other Works

This article explores the federal income tax treatment of employment-related child care expenses. It takes both a theoretical and historical approach, examining the various ways in which the Code has dealt with child care in relation to conventional tax notions and values at play in the community at large.

Part II outlines the history of the Code's various childcare provisions. It is a critical analysis whose purpose is to decide whether any of the provisions, which have existed, can be explained by a particular tax theory.

Part III asks whether employment-related childcare expenses can be characterized as "business" or "personal" …

Closely Held Stocks—Deferral And Financing Of Estate Tax Costs Through Sections 303 And 6166, Douglas A. Kahn

Articles

The enactment of the Economic Recovery Tax Act of 1981 (hereinafter referred to as "the 1981 Act") will reduce both the impact of federal wealth transfer taxes and the number of persons still subject to them. Nevertheless, even after the 1981 Act takes full effect, a category of persons remains for whom wealth transfer taxes will constitute a meaningful burden and whose estates face a liquidity problem in satisfying the estate tax liability. The focus of this article is on two statutory techniques: redemptions of stock pursuant to section 3031 and deferral of estate tax payments under section 6166.2 These …

Appreciation Under The Casualty Loss, Alan L. Feld

Faculty Scholarship

According to the author, who asserts that the regulations allow an overly generous casualty loss deduction for partial losses on appreciated property, untaxed gain in the form of unrealized appreciation should be taken into account when determining a partial loss.

Accelerated Depreciation—Tax Expenditure Or Proper Allowance For Measuring Net Income?, Douglas A. Kahn

Articles

Since the 1950s, it has become fashionable to attack various provisions of the Internal Revenue Code by calling them "subsidies" rather than "proper" means of measuring taxable income. These "subsidies" through Code provisions have come to be referred to as "tax expenditures," a term coined by Professor Stanley Surrey in a speech he made as Assistant Secretary of the Treasury for Tax Policy on November 15, 1967. In that speech, Professor Surrey stated that our tax system often deliberately departs "from accepted concepts of net income," so that by granting exemptions, deductions, and credits that are not appropriate to an …