Tax Law Commons^™

Why The United States Needs A Gaar, Reuven S. Avi-Yonah

Articles

The Internal Revenue Code of 1986, as amended, has over 1 million words and more than 5,600 pages. It is by far the longest and most complicated law in the U.S. code. The regulations add over 4 million words. Why?

Whither Lob?, Reuven S. Avi-Yonah

Articles

On January 1, 2024, the 1979 tax treaty between the United States andHungary was officially terminated.A revised treaty was signed in 2010but was never ratified by the United States, and it is unlikely that it willcome into effect any time soon.This situation is an anomaly because the United States has tax treaties withmost other members of the European Union (EU) and the Organisation forEconomic Co-operation and Development (OECD). Why did the UnitedStates terminate the treaty in July 2022?

Penalizing Precarity, Goldburn P. Maynard Jr., Clinton G. Wallace

Michigan Law Review

Retirement policy in America is oriented around 401(k) plans and other employer- sponsored savings plans, which together will receive a whopping $1.5 trillion in tax subsidies over the next decade. This Article uncovers a harmful flaw in the policy governing withdrawals made prior to reaching retirement age: an unnoticed gap between the rules governing plan distributions and the rules imposing penalties on employees in certain situations. Employees are generally required to seek approval from their plan administrator to receive a “hardship distribution.” These requests are granted for employees who face an “immediate and heavy financial need,” such as eviction or …

Building The Gateway: Why The Two Pillars Need Each Other., Reuven S. Avi-Yonah, Ajitesh Kir

Articles

There is a reason the OECD proposed two pillars for its gateway to a better tax future. A gateway requires both pillars, and neither can stand without the other. Pillar 2 is a fait accompli, but it needs countries to implement Pillar 1 as well because in the absence of a clear sourcing rule there is no limit to countries implementing the Qualified Domestic Minimum Top-Up Tax (QDMTT), which would turn off the other parts of Pillar 2 and potentially result in double taxation. Pillar 1 is not going forward in the absence of a Multilateral Tax Convention (MLC), but …

Could Moore Have Been Mooted?, Reuven S. Avi-Yonah

Articles

On December 5 the Supreme Court heard oral arguments in Moore, the first constitutional challenge to an income tax provision to come before the Court in more than a century. The issue is whether the word "income" in the 16th Amendment includes a requirement that the income be realized, as implied by some statements in the previous constitutional challenge to an income tax provision considered by the Court, Eisner v. Macomber.

Antitrust And The Corporate Tax, 1909–1928, Reuven S. Avi-Yonah

Book Chapters

In “Antitrust and the Corporate Tax, 1909–1928,” Reuven Avi-Yonah examines a twentieth-century antitrust measure that lay outside the Sherman Act per se—the corporate tax act of 1909. After the enactment of the Clayton Act and the creation of the FTC in 1914, the corporate tax’s antimonopoly reputation faded somewhat. Between 1919 and 1928 most of its antitrust features were eliminated, and they would not be revived during the New Deal. Nevertheless, Avi-Yonah argues that the corporate tax still retains some potential to contribute to limiting the power of monopolies, especially if the progressive corporate tax rate structure adopted in the …

International Tax Law: Status Quo, Trends And Perspectives, Reuven S. Avi-Yonah

Book Chapters

This chapter addresses the status quo, trends, and perspectives in international tax law. The international tax regime (ITR) is based on two principles: the benefits principle and the single-tax principle (STP). The benefits principle gives the primary right to tax passive (investment) income to residence jurisdictions, and the primary right to tax active (business) income to source jurisdictions. Meanwhile, the STP states that all cross-border income should be subject to the rate of tax determined by the benefits principle. The chapter then argues that developments in the past decade have significantly bolstered the ITR, so that it does a much …

Moore V. United States: Brief Of Amici Curiae Reuven Avi-Yonah, Clinton G. Wallace & Bret Wells In Support Of Respondent, Reuven S. Avi-Yonah

Appellate Briefs

Amici are professors of tax law. Amici join this brief solely on their own behalf and not as representatives of their universities.

Reversing the Moore decision would invalidate or at the very least cast considerable doubt over many sections of the Internal Revenue Code. Rules that call for taxation without realization (“Nonrealization Rules”) and their predecessors can be traced back to the earliest iterations of the income tax after the Sixteenth Amendment was ratified. Although the section 965 transition tax (“Transition Tax”) is a single-application provision that has no ongoing import, it is fashioned in the same manner as Nonrealization …

The Weakness Of Neighborhood Revitalization Planning In The Low-Income Housing Tax Credit Program: Warnings From Connecticut, Noah Kazis, Katherine M. O'Regan

Articles

The Low-Income Housing Tax Credit (LIHTC) is the nation's largest program to produce and preserve subsidized housing. To ensure that LIHTC avoids harmfully concentrating poverty, entrenching segregation, or inefficiently deploying resources, federal law requires that states prioritize allocating credits to projects located in high-poverty locations that contribute to a "concerted community revitalization plan" (CCRP). In high-poverty neighborhoods, tax credit developments are meant to facilitate broader neighborhood revitalization, not only to benefit the residents of the housing itself. This paper provides new, empirical support for long-standing concerns that the CCRP process is ineffectively enforced.

Looking at each application for competitive tax …

The Historical Origins And Current Prospects Of The Multilateral Tax Convention, Reuven S. Avi-Yonah, Eran Lempert

Articles

This article has three aims. First, it surveys the pre-BEPS efforts to create a multilateral tax convention (MTC) from the 19th century onward, and explains why these efforts have failed, leading to an international tax regime dominated by unilateralism and bilateralism. Second, it contrasts the success of multilateralism in investment and trade law. Third, it examines the BEPS era efforts to create an MTC and suggests that, while there has been more convergence of the tax laws of countries, a fundamental divergence of interests persists that will likely doom any such efforts to failure. The article concludes that, at this …

What Would Surrey Say? The Long Reach Of Stanley S. Surrey, Reuven S. Avi-Yonah, Nir Fishbien

Law & Economics Working Papers

This essay examines the extent of Surrey’s influence on developments in tax law after his death. It argues that his ideas clearly impacted the tax reform of 1986, but can even be seen in later enactments like the Tax Cuts and Jobs Act of 2017 and contemporary developments in international taxation. This in turn enables us to get a clearer perspective on what Surrey aimed to achieve and what the goals of these later developments are.

After Pillar One, Reuven S. Avi-Yonah

Law & Economics Working Papers

Pillar One is unlikely to succeed for three reasons. First, it requires an MTC to be implemented because Amount A requires overriding Articles 5 (Permanent Establishment, PE), 7 (Business Profits) and 9 (Associated Enterprises) of every tax treaty to abolish the PE and Arm’s Length Principle (ALP) limits enshrined therein. But negotiating an MTC is hard, especially when over 100 countries are involved and there are fundamental disagreements among them.

Second, because Pillar One (despite its October 2021 expansion) is still aimed primarily at taxing the US digital giants (Big Tech), it is hard to envisage it being implemented without …

The Historical Origins Of The Multilateral Tax Convention, Reuven S. Avi-Yonah, Eran Lempert

Law & Economics Working Papers

This paper will survey the efforts to create a multilateral tax convention (MTC) from the beginnings of the international tax regime to the present day. The paper’s main contribution is to provide a historical analysis of the (failed) efforts to create a MTC from the beginnings of the ITR until the League of Nations (as contained in Part 1 to this paper). Part 2 of the paper serves to provide a brief modern context to the historical analysis from Part 1, covering why the multilateral instrument (MLI) that was included in BEPS 1.0 is not a true MTC, and secondly …

A Response To Professor Choi’S Beyond Purposivism In Tax Law, Reuven S. Avi-Yonah

Law & Economics Working Papers

This response to Professor Choi’s excellent article questions whether the proposals made by the article can solve the tax shelter problem, and argues that a better response is to bolster purposivism with a statutory general anti-abuse rule (GAAR).

Digital Tax Arithmetic., James R. Hines Jr.

Articles

More than 20 countries recently adopted digital services taxes, with many others threatening to do so. The Organisation for Economic Co-operation and Development (OECD) is attempting to convince countries to withdraw their digital taxes in return for an international agreement to implement its Pillar One proposal that would let countries tax prorated shares of the profits of foreign firms with local sales. This paper identifies incentives that countries have to impose inefficiently high rates of digital taxes and calls attention to shortcomings of the OECD’s formulary apportionment alternative. Diverging interests and the inflexible nature of the multilateral bargaining process make …

Microsoft's Cost-Sharing Arrangement: Frankenstein Strikes Again, Stephen L. Curtis, Reuven S. Avi-Yonah

Articles

This paper performs a forensic analysis of Microsoft Corporation’s transfer pricing cost sharing arrangement based on forensic economic analysis of public and information, including Microsoft’s SEC and foreign country regulatory filings, documents disclosed during a recent federal court trial, materials published by Microsoft, and information from former insiders interviewed for this paper, and other sources. The paper finds that Microsoft appears to have violated U.S. transfer pricing laws in 2009 and later years, in ways that caused its transfer pricing cost sharing arrangement with its Irish, Singaporean and Puerto Rican affiliates under U.S. tax laws to be invalid. However IRS …

The Utpr And The Treaties, Reuven Avi-Yonah

Articles

On December 15, 2022, the Council of the EU unanimously adopted a directive implementing pillar 2 of the OECD/G-20/inclusive framework base erosion and profit-shifting 2.0 project. Given that the United Kingdom is also going ahead, and several other countries (for example Australia, Canada, New Zealand) are likely to go ahead, this step renders it likely that pillar 2 will come into effect outside the United States. It therefore becomes important to address the interaction between the UTPR (now known as the undertaxed profits rule) and tax treaties, even though both EU directives and national legislation in the United Kingdom can …

Corporate Income Tax: We Tried The Stick, How About The Carrot?, Doron Narotzki, Tamir Shanan

Michigan Business & Entrepreneurial Law Review

Due to their ongoing focus on tax planning and continuous efforts to find new tax minimization strategies, multinational corporations have not been paying their fair share of taxes for a long time. As a result, the federal government is unable to generate much revenue through taxes levied on corporations. The government’s response to this problem has always been the same: introduce new tax laws and regulations, revise old tax laws to close “loopholes,” and hope that this will solve corporate tax evasion. For decades, this approach has failed.

This Article examines the history of the corporate income tax in the …

Startups In The Whirlpool Of Divorce, Mira Ganor

Michigan Business & Entrepreneurial Law Review

Startups use stock options to compensate their employees. An employee’s divorce could result in a change in the formal ownership of the startup securities. However, the startup, the employee, and the former spouse of the employee all have considerable and conflicting interests in the outcome of the allocation of the employee’s securities as part of a divorce settlement. I argue that the startup, along with the relevant tax rules, imposes obstacles on the transferability of the securities to the employee’s former spouse that are likely to distort the settlement outcome. An inefficient outcome is likely because the person who may …

The First Us Tax Treaty And Its Influence, Reuven S. Avi-Yonah

Other Publications

In 1945, the US negotiated a tax treaty with the UK.1 This treaty was based on the London model, which was the last contribution of the League of Nations to international tax. Since it was a treaty between the two most important economies in the world, it precipitated the post-war rise in tax treaty negotiations. It also was similar to the first OECD model of 1963. In general, with a few exceptions (citizenship-based taxation, residence of corporations, limitation on benefits) the US models of 1981, 1996, 2006 and 2016 closely resemble the OECD model. This is not surprising given the …

What Would Surrey Say? The Long Reach Of Stanley S. Surrey, Reuven Avi-Yonah, Nir Fishbien

Articles

Stanley S. Surrey died in 1984, two years before the enactment of the Tax Reform Act of 1986, which gave us the Internal Revenue Code of 1986 as amended. Historians have recently discovered Surrey’s work through his memoirs, published in 2022, and several articles based on the memoir and on the unpublished Surrey papers at Harvard Law School. There is no doubt that Surrey was a towering historical figure during his “Half-Century with the Internal Revenue Code.” As his protégé Donald Lubick, who served as Assistant Secretary for Tax Policy in both the Carter and the Clinton Administrations, stated, Surrey …

The Utpr And The Credits, Reuven S. Avi-Yonah

Articles

Critics of the UTPR (formerly known as the undertaxed payments rule) of the G-20/0ECD/ inclusive framework base erosion and profit shifting project's pillar 2 have focused on the potential impact of the top- up tax on U.S. environmental credits enacted in the Inflation Reduction Act(IRA, P.L.11 7-169) and on credits to encourage domestic chip manufacturing in the Creating Helpful Incentives to Produce Semiconductors and Science Act (the CHIPS Act, P .L. 117-167). They argue that Congress's ability to effectively implement its chosen policy goals is undermined because the UTPR - when applied to other parts of U.S. multinational enterprises - …

Individual Mobility And The Corporate Tax, Reuven S. Avi-Yonah

Articles

The COVID-19 pandemic greatly increased the ability of individuals to move to their preferred location on the globe and continue to work remotely. This phenomenon has significant implications for individual income taxation because if they are U.S. citizens, these individuals are subject to two global residence-based tax regimes.

Pillar 2 And The Credits., Reuven S. Avi-Yonah

Articles

The international tax provisions of the Build Back Better Act (BBB) passed by the House of Representatives represent a reasonable compromise. They are consistent with the OECD’s Pillar Two statement, and they represent a significant move toward the implementation of the single tax principle (STP). In what follows, we will discuss the proposed changes and how they fit in with the new international tax regime (ITR). We will also address the possible interactions with the ITR if BBB is not enacted.

Reforming The Exit Tax, Reuven S. Avi-Yonah

Articles

Code Sec. 877A was enacted in 2008 to impose a significant price on U.S. cit-izens who expatriate. But the price is not right. The quarterly data on expatri-ations (published in the Federal Register since 1998) show an increasing trendsince 2008. For example, 3,422 Americans expatriated in 2022, and the averagesince 2013 was 3,239. By comparison, between 1998 and 2012, fewer than1,000 Americans expatriated each year. This paper will discuss why the increasehappened and what Congress can do about it.

Constitutional Review Of Federal Tax Legislation, Reuven S. Avi-Yonah, Yoseph M. Edrey

Articles

What does the Constitution mean when it says that “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States” (U.S. Const. Article I, Section 8, Clause 1)?

The definition of “tax” for constitutional purposes has become important considering the Supreme Court’s 2012 decision in National Federation of Independent Business v. Sebelius (“NFIB”), in which Chief Justice Roberts for the Court upheld the constitutionality of the individual mandate of the Patient Protection and Affordable Care Act (“ACA”) under the taxing …

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 …

Weathering State And Local Budget Storms: Fiscal Federalism With An Uncooperative Congress, David Gamage, Darien Shanske, Gladriel Shobe, Adam Thimmesch

University of Michigan Journal of Law Reform

Throughout most of 2020, state and local governments faced severe budget crises as a result of the COVID-19 pandemic. Increased demand for state welfare services and rising state expenses related to controlling the spread of COVID-19 stretched state and local budgets to their breaking points. At the same time, layoffs, business closures, and social distancing measures reduced states’ primary sources of tax revenues. The traditional practice of American fiscal federalism is for the federal government to step in to provide aid during a national emergency of this magnitude, because state and local governments lack the federal government’s monetary and fiscal …

Tax Harmony: The Promise And Pitfalls Of The Global Minimum Tax, Reuven Avi-Yonah, Young Ran (Christine) Kim

Michigan Journal of International Law

The rise of globalization has become a double-edged sword for countries seeking to implement a beneficial tax policy. On one hand, there are increased opportunities for attracting foreign capital and the benefits that increased jobs and tax revenue brings to a society. However, there is also much more tax competition among countries to attract foreign capital and investment. As tax competition has grown, effective corporate tax rates have continued to be cut, creating a “race-to-the-bottom” issue.

In 2021, 137 countries forming the OECD/G20 Inclusive Framework on BEPS passed a major milestone in reforming international tax by successfully introducing the framework …

The Psychology Of Taxing Capital Income: Evidence From A Survey Experiment On The Realization Rule, Zachary Liscow, Edward G. Fox

Articles

We conduct the first survey experiment to understand public attitudes about the capital gains realization rules. These rules requires that assets usually must be sold before gains on them are taxed and thus makes taxing capital income much harder. We have three main findings. First, respondents strongly prefer to wait to tax gains on stocks until sale: 75% to 25%. But the flip side is that there is surprisingly strong support for taxing gains on assets at sale or transfer, including at death, in areas where current law never taxes those gains. Second, these stated views change only modestly when …