Tax Law Commons^™

Should The Oecd Accept Gilti As A Valid Iir?, Reuven S. Avi-Yonah

Articles

On June 26 Treasury Secretary Scott Bessent announced a deal with the G7 to accept the global intangible low-taxed income tax as a valid income inclusion rule tax and not apply the undertaxed profits rule to U.S. multinational enterprises. Bessent said a “joint understanding” among the United States and other countries will be announced soon. “OECD pillar 2 taxes will not apply to U.S. companies, and we will work cooperatively to implement this agreement across the OECD-G20 inclusive framework in coming weeks and months,” Bessent wrote. Soon after, Senate Finance Committee Chair Mike Crapo, RIdaho, and House Ways and Means …

Proposed Cloud Services Sourcing Rule: The Right Direction, Reuven Avi-Yonah, Jeffery M. Kadet, Karen Sam

Articles

This past January, in conjunction with the issuance of a final regulation (T.D. 10022) that treats income from defined cloud transactions as income from services, Treasury and the IRS released a proposed regulation (REG-107420-24) on the sourcing of that income. In 2019 a Treasury official had asked the tax community for feedback on whether specific cloud transaction sourcing rules were needed, and the preamble to a 2019 proposed regulation asked for comments on “administrable rules for sourcing income from cloud transactions in a manner consistent with sections 861 through 865.” The feedback was “split almost evenly with regard to whether …

No Trade Wars Without Taxation -Who's To Blame, And What Comes Next?, Domenico Imparato, Reuven S. Avi-Yonah, Doron Narotzki

Law & Economics Working Papers

As tariff policy once again shapes U.S. trade strategy, this article makes a foundational claim: trade wars are, at their core, tax wars. Against the backdrop of escalating economic tensions with the United States’ trade partners, this article argues that tariffs cannot be understood apart from the fiscal architecture that sustains them. What appears to be protectionism often masks deeper structural asymmetries in the U.S. tax system.

The discussion proceeds through three interrelated dimensions: reshoring production, promoting fair trade, and raising revenue. In each, the interaction between tariffs and the tax system reveals deeper distortions. U.S. export mechanisms such as …

Redesigning Post-Incarceration Employment Tax Credits: Making Work Opportunity Credits Work For Former Felons, Stephanie Hunter Mcmahon

University of Michigan Journal of Law Reform

Former felons have a significantly higher unemployment rate than other groups of American workers. This unemployment increases recidivism as well as broader societal problems. Consequently, Congress enacted the Work Opportunity Tax Credit to encourage employers to hire former felons (and other groups of targeted workers) by offsetting their wages. For the credit to increase employment, employers must know whether potential workers would likely qualify for the credit before hiring decisions are made. However, the growing Ban the Box Movement seeks to defer or eliminate conviction history questions in hiring. After examining the credit’s stated purpose, its operating mechanism, and some …

Deglobalization, Tax Competition, And The Potential Revival Of The Welfare State, Reuven S. Avi-Yonah, Doron Narotzki

Articles

Before 1980 the world was relatively closed. There were significant barriers to cross-border trade and investment in the form of tariffs and exchange controls. Martin Feldstein, former President Reagan’s chief economic adviser, coauthored an article in 1979 that showed that investment in the U.S. economy was about equal to U.S. savings, so the United States could manage without any foreign direct or portfolio investment.

The Tax Redistribution Gap, Eric Baudry

Fellow, Adjunct, Lecturer, and Research Scholar Works

The tax revenue gap—the difference between how much the IRS collects in tax revenue and how much it should collect based on the text of the Internal Revenue Code—is both well-defined and well-studied. But raising revenue is just one purpose of taxation; the tax code also operates to redistribute wealth. Drawing from the tax revenue gap and redistribution literatures, this article coins a parallel concept, the tax redistribution gap, to map the extent to which the tax system falls short of its redistributive goals.

Introducing a tax redistribution gap measure challenges background assumptions in current tax discourse: first, it would …

Why Did The Irs Restart Transfer Pricing Litigation?, Reuven S. Avi-Yonah

Articles

In his excellent recent article on Coca-Cola’s appeal of its transfer pricing defeat in the Tax Court, Tax Notes contributing editor Ryan Finley explains that Coca-Cola’s main argument is based on the idea that “the IRS led the company into an ambush.” In 1996 the IRS entered into a closing agreement with Coca-Cola that provided that for the 1987 through 1995 tax years, the division of profits between Coca-Cola and its foreign “supply points” (the subsidiaries responsible for mixing the secret formula) would be based on a 10 percent return to the subsidiary and that any profit above that would …

Should The States Return To Worldwide Combined Reporting?, Reuven S. Avi-Yonah

Articles

On February 20 the Institute on Taxation and Economic Policy (ITEP) released a report on the revenue implications of states adopting worldwide combined reporting (WWCR). WWCR refers to a method of taxation that several states (for example, California) applied from the 1970s to the 1990s. Under WWCR, the state takes the entire worldwide profit of a multinational operating in the state and multiplies it by a formula that traditionally combines payroll, tangible assets, and sales in the state divided by worldwide payroll, assets, and sales. The result is the amount of profit taxable in that state.

Retaliatory Taxation, Reuven S. Avi-Yonah

Law & Economics Working Papers

This paper discusses the Trump administration's potential use of section 891 and pending legislation to apply retaliatory taxes to foreign countries that impose "discriminatory or extraterritorial" taxation on US multinationals.

Was The Niit A Treaty Override?, Reuven S. Avi-Yonah

Law & Economics Working Papers

Three court decisions have recently addressed the interaction of the Net Investment Income Tax (NIIT) and US tax treaties. The issue was whether the treaty provided an independent basis for crediting a foreign tax against the NIIT, because no such credit is available under the Code. First, in Toulouse, the Tax Court held that there was no treaty based credit. Second, in Christensen, the Court of Federal Claims held that a treaty-based credit was available, distinguishing Toulouse. Third, in Bruyea, the Court of Federal Claims issued a broader opinion that allowed the credit. Importantly, Bruyea addressed an issue that was …

Is The Utpr Extraterritorial Or Discriminatory?, Reuven S. Avi-Yonah

Articles

On January 20 President Trump issued two executive orders on international tax. The first order rejected the OECD’s two-pillar project, stating: The OECD Global Tax Deal supported under the prior administration not only allows extraterritorial jurisdiction over American income but also limits our Nation’s ability to enact tax policies that serve the interests of American businesses and workers. Because of the Global Tax Deal and other discriminatory foreign tax practices, American companies may face retaliatory international tax regimes if the United States does not comply with foreign tax policy objectives. This memorandum recaptures our Nation’s sovereignty and economic competitiveness by …

Esg Irony: Why Corporate Tax Avoidance Must Be Considered, Reuven S. Avi-Yonah

Articles

Environmental, social, and governance (ESG) investing has been the focus of major attention in corporate law. Many writers praised ESG as the future of corporate governance. The push for ESG comes from the belief that the government is incapable of fulfilling its responsibility of achieving social and environmental goals, and that corporations are frequently in the best position to help. ESG investing has been significantly bolstered by large asset management institutions like BlackRock Group, State Street Global Advisors, and Vanguard Group. The “Big Three” own large stakes in most public corporations, which they have been pushing to address ESG issues.

Tax Experience Isn’T Everything: A Tale Of Two Justices., Reuven S. Avi-Yonah

Articles

Any student of federal income taxation is familiar with a series of important Supreme Court tax decisions written by Justice Harry Blackmun (associate justice, 1970-1994). They would also know of three important decisions written by his contemporary, Justice Thurgood Marshall (associate justice, 1967-1991). It is interesting to compare the two, because Blackmun was the only recent justice with extensive tax practice experience, whereas Marshall had none. Yet, most of Blackmun’s tax opinions were wrong while Marshall’s opinions were right.

Taxes And Certainty: Challenges In Judicial Review Of U.S. Tax Legislation, Reuven S. Avi-Yonah, Moshe Jaffe

Law & Economics Working Papers

The application of judicial review to tax legislation presents unique challenges and inconsistencies. Unlike other forms of legislation, tax laws in the United States are seldom invalidated by the Supreme Court, and when this does occur, it is done using various and inconsistent tests, suggesting a need for a more balanced and effective approach. This paper explores the U.S. court's approach to judicial review in tax cases, empirically analyzing the methods and tests used in key decisions. The findings will reveal a complex and inconsistent picture, highlighting the need for a more coherent approach. Additionally, the research will analyze several …

Is The Us Exit Tax Constitutional?, Reuven S. Avi-Yonah

Law & Economics Working Papers

The recent US Supreme Court decision in Moore vs. United States raised the possibility that the Court would declare that realization is required for a tax provision to be constitutional. The US exit tax on expatriations is the most likely vehicle for a post-Moore constitutional challenge to taxation without realization because (a) it involves individual taxpayers; (b) it does not involve attribution, because the tax is imposed directly on the expatriating taxpayer, and (c) it involves precisely the kind of tax that was the direct target of the Moore litigation, namely a mark to market tax on rich taxpayers (the …

Should Country-By-Country Reporting Be Public?, Reuven S. Avi-Yonah

Articles

Under action 13 of the base erosion and profit shifting project, large multinational enterprises are obligated to file country-by-country reports with tax authorities. As of April 2024, over 80 countries have adopted a multilateral agreement on exchanging CbC reports. The United States has not adopted the multilateral agreement, but regulations require U.S.-based MNEs to file these reports with the IRS, which can then exchange them with other countries under tax treaties.

Should The United States Abandon Citizenship-Based Taxation?, Reuven S. Avi-Yonah

Law & Economics Working Papers

President Trump proposed during the election campaign to end the "double taxation" of American citizens living overseas. To which the answer is, what double taxation? Americans living overseas already benefit from three significant provisions that in most cases prevent any double taxation, and because of these most of them do not have any U.S. tax liability. Those who do are typically wealthier, derive income from investments or from high wages, and are not subject to foreign tax because they live in tax havens or in countries that do not tax rich immigrants on foreign source income, and they do not …

Reforming The Medical Expense Income Tax Deduction To Better Reflect "Crip Time", Diane Kemker

University of Michigan Journal of Law Reform Caveat

Extraordinary medical expenses— whether due to a one-time occurrence or a chronic condition— happen on their own time. These expenses, their causes, and their consequences (medical, personal, financial, or all of these) can rarely be neatly cabined into a single calendar year. Treatment requiring an expensive prescription medication or complex surgery not covered by insurance may address a condition that arose over years. That condition may have interfered with a taxpayer’s ability to work in prior years, the current year, and perhaps for years to come, even for the rest of the taxpayer’s earning life. The medical condition of a …

The Role Of Unrealized Gains And Borrowing In The Taxation Of The Rich, Edward Fox, Zachary Liscow

Law & Economics Working Papers

As deficits rise and concerns about tax avoidance by the rich increase, we study how unrealized gains and borrowing affect Americans’ income taxes. We have four main findings: First, measuring “economic income” as currently-taxed income plus new unrealized gains, the income tax base captures 60% of economic income of the top 1% of wealth-holders (and 71% adjusting for inflation) and the vast majority of income for lower wealth groups. Second, adjusting for unrealized gains substantially lessens the degree of progressivity in the income tax, although it remains largely progressive. Third, we quantify for the first time the amount of borrowing …

Three Implications Of Moore., Reuven S. Avi-Yonah

Articles

In his majority opinion in Moore, Justice Brett Kavanaugh listed several provisions of the code that could be subject to a constitutional challenge if realization were a constitutional requirement, as suggested by Justices Amy Coney Barrett, Samuel A. Alito Jr., Clarence Thomas, and Neil M. Gorsuch. Kavanaugh wrote: In short, the Moores cannot meaningfully distinguish the [mandatory repatriation tax] from similar taxes such as taxes on partnerships, on S corporations, and on subpart F income. The upshot is that the Moores’ argument, taken to its logical conclusion, could render vast swaths of the Internal Revenue Code unconstitutional. See, e.g., 26 …

Should Congress Reform The Accumulated Earnings Tax?, Reuven S. Avi-Yonah

Articles

In this installment of Reflections With Reuven Avi-Yonah, Avi-Yonah explains why the shifting landscape of the corporate tax rate requires congressional intervention. The Tax Cuts and Jobs Act 2017 permanently cut the corporate tax rate from 35 percent to 21 percent, and the Republican victory in the 2024 presidential election means that the rate is unlikely to be raised in the next four years. This means that there is, once again, a large disparity between the top individual tax rate of 37 percent (scheduled to increase to 39.6 percent in 2026 unless Congress acts) and the corporate rate. The corporate …

Should Harvard And Other Large Nonprofits Be Taxed?, Reuven S. Avi-Yonah

Articles

In this installment of Reflections With Reuven Avi-Yonah, Avi-Yonah examines justifications for exempting Harvard University and other large nonprofits from tax and argues that treating those organizations like large C corporations would not be such a bad thing. The proposal to subject large university endowment investment income to the corporate tax rate of 21 percent instead of the current 1.4 percent rate has engendered significant debate. More recently, President Trump’s threat to strip Harvard University of its tax-exempt status and treat it as a taxable corporation has likewise been controversial. In their recent Tax Notes article, Harvey Dale, Daniel Hemel, …

Can Side By Side Work?, Reuven S. Avi-Yonah

Articles

On June 26 Treasury Secretary Scott Bessent announced that a compromise had been reached between the United States and the rest of the G7 (Canada, France, Germany, Italy, Japan, and the United Kingdom), providing that pillar 2 of the OECD’s two-pillar global tax reform project will not apply to U.S. multinationals. As a result, proposed section 899, which would have imposed retaliatory taxation on corporations from countries that apply pillar 2 (and specifically the undertaxed profits rule) to U.S.-based multinationals, was removed from the One Big Beautiful Bill Act.

The Irs Approach To Periodic Adjustments: Losing Bet Or Royal Flush?, Jeffery M. Kadet, Reuven S. Avi-Yonah, David G. Chamberlain, Stephen L. Curtis

Articles

In this article, the authors argue that GLAM 2025-001 is consistent with the terms and purposes of the commensurate with income provision, relevant legislative history, and applicable case law and that the IRS approach to commensurate with income enforcement is a valid application of discretion delegated by Congress to the Treasury under Loper Bright.

Should The United States Abandon Citizenship-Based Taxation?, Reuven S. Avi-Yonah

Articles

President Trump proposed during the election campaign to end the “doubletaxation” of American citizens living overseas.To which the answer is,what double taxation?Americans living overseas already benefit from three significant provisions thatin most cases prevent any double taxation, and because of these most of them donot have any U.S. tax liability.Those who do are typically wealthier, derive incomefrom investments or from high wages, and are not subject to foreign tax becausethey live in tax havens or in countries that do not tax rich immigrants on foreignsource income, and they do not have any income from their country of residence.

Periodic Adjustments And The Arm's Length Principle, Reuven S. Avi-Yonah

Articles

The Internal Revenue Service (IRS) recently issued AM 2025-001, whichrepresents a significant change in its interpretation of the periodic adjustment rules for transfers of intangibles within a multinational and forcost-sharing agreements.Arguably, this finally brings the IRS into compliancewith the “commensurate with income” language added to Code Sec. 482 in1986.

Are We Trapped By Realization?, Reuven S. Avi-Yonah

Articles

In this installment of Reflections With Reuven Avi-Yonah, Avi-Yonah examines the downsides of the realization requirement and potential solutions to them. In an excellent Tax Notes article, Steven Sheffrin recently mounted the most convincing defense of the realization requirement I have read. He explained that the case for taxing unrealized capital gains is based on the Haig- Simons definition of income. In this definition, income equals consumption plus savings when savings includes both realized and unrealized capital gains. If asset prices change because of changes in future cash flows, Haig-Simons income can provide an appropriate guide for designing tax policies.

Corporate Tax: Best Tool For Taxation's Regulation Goal, Reuven S. Avi-Yonah

Articles

In this installment of Reflections With Reuven Avi-Yonah, Avi-Yonah explains the three primary goals of taxation — revenue, redistribution, and regulation — and shows how VAT, the individual tax, and the corporate tax each uniquely match one of the goals. On January 20 President Trump signed two executive orders related to international taxation, marking a sharp policy shift from the prior administration. The first renounced any prior U.S. commitments to the OECD/inclusive framework global anti-base-erosion (GLOBE) project, stating that “the Global Tax Deal has no force or effect in the United States.” The order argued that the GLOBE project infringed …

Eliminating Qbai - One Step Forward, Two Steps Back?, Reuven S. Avi-Yonah

Articles

In this installment of Reflections With Reuven Avi-Yonah, Avi-Yonah explains what makes an effective U.S. tax regime and uses those attributes to evaluate the One Big Beautiful Bill Act. There is plenty to criticize about the One Big Beautiful Bill Act (OBBBA, P.L. 119-21), signed into law by President Trump on July 4. It increases the deficit by about $4 trillion when the interest costs from the additional borrowing are included, and by about $5.5 trillion if its provisions are made permanent in 2029, like the Tax Cuts and Jobs Act provisions were in 2025. It is distributionally skewed to …

Is The Obbba Compatible With Pillar 2?, Reuven S. Avi-Yonah

Articles

In this installment of Reflections With Reuven Avi-Yonah, Avi-Yonah compares House and Senate sections of the One Big Beautiful Bill Act and examines the potential effect on international tax relations. On May 22 the House of Representatives passed the One Big Beautiful Bill Act (OBBBA). The House version of the OBBBA extended the Tax Cuts and Jobs Act tax cuts but did not significantly change its international provisions. It did, however, contain proposed section 899, which would have imposed enhanced taxation on residents and corporations from countries that have “discriminatory or extraterritorial taxes,” defined to include primarily the undertaxed profits …