Tax Law Commons^™

Concerto For Piano Vs. Orchestra: Can Tax And Financial Accounting Harmonize On Hedges?, John J. Ensminger

Akron Tax Journal

The preference for fair value accounting, for marking items to market for financial reporting or tax purposes, has been particularly strong in the last decade, and has become almost doctrine among accounting standards setters as the preferred method of accounting for financial instruments. Though a similar trend can be documented for tax accounting, the longstanding preference for correlating tax liability with realization events continues to prevent consistency. Also preventing consistency are the myriad difficulties in distinguishing capital gain from ordinary income (where embedded derivatives seem to make the result almost arbitrary), those equally subtle difficulties in distinguishing debt from equity …

International Estate Planning 101: A Basic Guide To Estate Planing For Non-Citizen Clients, Robin Rose Stiller

Akron Tax Journal

The United States has often been called the "great melting pot of the world" because of the large numbers of foreign-born individuals that can be found here. In fact, according to the 1990 U.S. Census, 19.8 million people living in the United States were foreign-born, including nearly 260,000, or 2.4%, of Ohioans. Nearly 12 million of those foreign-born and living in the U.S. were not U.S. citizens and in 1996, Ohio alone was home to 113,000 legal permanent resident aliens. In addition to these resident aliens, large numbers of nonresident aliens, such as the more than 19 million alien tourists, …

The Commissioner's Clear Reflection Of Income Power Under 446(B) And The Abuse Of Discretion Standard Of Review: Where Has The Rule Of Law Gone, And Can We Get It Back?, Jennifer C. Root

Akron Tax Journal

This article will first examine the evolution of the rule of law by examining the conceptual frameworks proposed by scholars to analyze the rule of law. The foundations of the rule of law taken from these scholars will be condensed into several principles applicable to modem tax law. These principles will then be used to illustrate how both discretion and adherence to the written law are necessary in order to promote a workable system of tax law promulgation, administration, and interpretation. The next section of this article will examine §446 of the Internal Revenue Code and the Commissioner's clear reflection …

Capturing The Harm: Defining "Tax Loss" For Use In Federal Sentencing, Bruce Zucker, Michelle Carey

Akron Tax Journal

The United States Sentencing Guidelines have set forth the system by which tax offenders are punished for violating the federal income tax laws. This Article explores the various methods that the appellate courts have used to define "tax loss" under the United States Sentencing Guidelines for purposes of sentencing enhancement for tax related offenses. It discusses the concept of "tax loss" for federal sentencing purposes, including the guideline provisions that drive the tax offender's offense level and ultimate guideline imprisonment range. It explores major circuit decisions which interpreted the proper implementation of the guideline sentencing factors. Finally, it examines issues …

Rethinking The Progressive Estate And Gift Tax, Barbara Redman

Akron Tax Journal

This article will not review the philosophical arguments about the legitimacy of unearned wealth versus the right of a person to give as she pleases with her own accumulation. Rather, it will focus on a view of the tax not yet explored to any great extent in legal and political circles, but supported by recent economic research, and to argue, if not against the tax itself, at least against the progressive nature of the tax.

Economic Nexus: Legislative Presumption Or Legitimate Proposition?, Craig J. Langstraat, Emily S. Lemmon

Akron Tax Journal

This article discusses the theory of economic nexus, the present nexus conditions in various states, and the constitutional issues surrounding nexus. These constitutional issues will then be applied to the theory of economic nexus in order to draw conclusions concerning the constitutionality and feasibility of this theory.

"Employee Stock Ownership Plans: Uncertainties Plaguing The Duties Of The Esop Fiduciary With Respect To Voting And Defensive Esops", Gina Marie Agresta-Richardson

Akron Tax Journal

This article will examine two particular dilemmas that challenge ESOP fiduciaries: voting rights and the use of defensive ESOPs. First, this article will discuss the development of ESOPs and their general mechanics. Second, it will explore the creation of ERISA, including the policy behind the statutory scheme. It will then set forth ERISA fiduciary law, noting the interplay of ERISA fiduciary standards and trust law. Third, this article will address problems confronting the ESOP fiduciary, specifically, voting and tendering shares of ESOP stock and the effect of using an ESOP as an anti-takeover device. In doing so, this article will …

Entrenching Interests: State Supermajority Requirements To Raise Taxes, Max Minzner

Akron Tax Journal

This article attempts to answer the question of supermajority design. If alterations in the tax code are to be restricted, how should they be limited? To what type of bills should a supermajority requirement apply? At what level should the requirement be implemented? When and how should the legislature be allowed to avoid the rule? Part II discusses the current House rule and considers why it was imposed, whether or not it is constitutional, and the effect the rule has had in practice. Part III moves to the states' experiences with supermajority requirements, and examines both the de jure limitations …

The Failure To Provide Adequate Higher Education Tax Incentives For Lower-Income Individuals, Natasha Mulleneaux

Akron Tax Journal

This Article suggests that the cost of the education incentives in the Taxpayer Relief Act of 1997 is better spent on programs which more effectively subsidize lower-income families' educational expenses. Part II discusses the benefits of higher education for the nation and individuals, and it provides a brief history of the federal government's role in funding higher education. Part III discusses the effect that increasing tuition costs and eroding grant programs likely have on college attendance. Part IV outlines the educational incentives contained in the Taxpayer Relief Act and critiques the usefulness of the tuition tax credits, and Part V …

Sports And Entertainment Figures (And Others) May Be Able To Deduct Legal Expenses For Criminal Prosecutions (And Wrongful Death Suits), John R. Dorocak

Akron Tax Journal

This article, first, explains the Gilmore origin of claim test. Secondly, the extension of the origin of claim to situations where the legal claim is less clearly connected to the taxpayer's business or income-seeking activities will be discussed. Thirdly, this article will analyze the issue of how a criminal prosecution, particularly for a murder in a situation such as Mr. Simpson's, can be connected to business or income-seeking. Fourthly, the issue of whether any government policy would prevent the deduction, especially for an unsuccessful criminal defendant, will be reviewed Fifthly, prior murder cases in which the defendant was not allowed …

The Origin Of The Claim Test: A Search For Objectivity, Edward J. Schnee, Nancy J. Stara

Akron Tax Journal

Recently, the Ninth Circuit Court of Appeals, in United States v. Kroy (Europe) Ltd., used the origin of the claim test to determine the deductibility of financing expenses. At approximately the same time, the Tax Court, in Fort Howard Corp. v. Commissioner, concluded the use of the origin of the claim test to characterize similar expenditures was inappropriate. Given this conflict and the extensive use of this test to evaluate the deductibility of expenditures, this article reviews the development of this test and provides an analysis of the potential conflicts and uncertainties in its application.

Practitioners - Beware The Trojan Horse: The Government Unsheathes An Old Weapon To Target Practitioners For Criminal Tax Offenses, Dante Marrazzo

Akron Tax Journal

Nestled within the many criminal sanctions of the Internal Revenue Code is a little known, less understood, and, until recently, seldom used statute proscribing attempts to interfere with administration of the Internal Revenue laws. This article will discuss the exponential increase in use of that provision, section 7212(a) of the Internal Revenue Code, in the last decade to seek prosecution of tax scofflaws, particularly practitioners, who might have otherwise escaped criminal sanctions. This article will call attention to some perils for the practitioner relating to representing a client on tax matters. Those perils include possible criminal prosecution of an attorney …

Dispute Resolution With The Irs And Taxpayer Bill Of Rights 2, Lee G. Knight, Ray A. Knight

Akron Tax Journal

This article expands on the meaning of reasonable time and place and examines numerous other rules governing audit examinations: (1) the significance of the taxpayer's last known address; (2) the rules governing representation before the IRS; (3) established channels for resolving difficult tax problems; (4) guidelines for disputing IRS findings; (5) IRS tools for collecting assessments of additional tax; and (6) the appropriateness of litigation in resolving assessment disputes. In addition, the Taxpayer Bill of Rights and the IRS initiatives to expand taxpayer rights are analyzed and explained. Tax practitioners with a working knowledge of these provisions will be better …

Personal Injury Exclusion: Is The Slashing Of Wrists Necessary?, Donald J. Zahn

Akron Tax Journal

This paper will examine the history of damage award taxation beginning with the earliest income tax statute through the present law. Part II traces the 1918 and 1939 income Tax Code provisions and the court cases interpreting those provisions. Part I addresses the 1954 income Tax Code provisions and the case law which further defines tax aspects of damage awards, and Part IV outlines the 1986 tax reform legislation, the 1989 damage award changes, and recent United States Supreme Court rulings on the taxation of damage awards. Finally, Part V suggests that the courts have turned their backs on traditional …

The Return To Corporate Tax Evasion In The Presence Of An Income Tax On Shareholders, Graeme S. Cooper

Akron Tax Journal

The paper will proceed in the following stages: Section II will describe a theoretical model of the incentive structure surrounding corporate tax evasion and the implications that the model suggests for the behavior of corporate managers. Section III will analyze how the personal income tax might change the returns to evasion and how this effect could be expected to influence the behaviour of the corporation's managers. Section IV will describe the principal interaction mechanisms between the corporate tax and personal income tax employed in practice. Section V will analyze the effects of each of the interaction mechanisms described. Section VI …

Property Valuation For Transfer Taxes: Art, Science, Or Arbitrary Decision?, Stephen C. Gara, Craig J. Langstraat

Akron Tax Journal

According to the regulations, the value referred to in the IRC is defined as "fair market value." Fair market value is itself defined as the "price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy nor sell, and both having reasonable knowledge of relevant facts."9 The so-called hypothetical "willing buyer/seller" standard is prevalent throughout the case law dealing with this issue."0 Given the importance of this standard, additional discussion is warranted.

The standard requires an analysis of both sides of the transaction. It is not appropriate to …

Tax Treatment Of Damages Awarded For Age Discrimination, Gerald A. Madek

Akron Tax Journal

Since the inception of anti-discrimination laws, the degree to which victims should be compensated has been a subject of debate. Legislators have always been acutely aware of competing pressures in this area. Civil rights advocates have persistently lobbied for generous compensatory awards for emotional distress, while businesses have lobbied just as persistently against these awards which threaten their ability to do business profitably. The result of these competing pressures has been a set of anti-discrimination statutes offering inconsistent remedies.

Interest Deduction For Individuals: Review And Update, Edward Schnee

Akron Tax Journal

This article will review the current cases and rulings involving business, investment and qualified residence interest. It will point out areas of uncertainty as well as planning opportunities and pitfalls.

Tax Rationality And The Independence Of Irrelevant Alternatives, James P. Spica

Akron Tax Journal

Patricia White recently asked a simple question: What is the value of systemic coherence, or rationality, in tax legislation. This is asked along the way of an errand that does not require its answer, but White supposes, in passing, that the value queried is relative: no doubt systemic coherence is desirable, but it may conflict with other values predicable of a tax system, values it cannot invariably trump. This entails, on the one hand, that normative claims for rationality in this sphere regularly imply assignments of weights, and, on the other hand, that systemic coherence ought to be irresistible whenever …

Exempt Organizations: A Study Of Their Nature And The Applicability Of The Unrelated Business Income Tax, John M. Strefeler, Leslie T. Miller

Akron Tax Journal

With the hope of clarifying a difficult issue, this paper examines the traditional categories of exempt organizations (EOs), rationales for their exempt status, tests for gaining and maintaining their exempt status, standard tests used to impose unrelated business income tax (UBIT), and ways in which the traditional tests and standards are changing. Furthermore, this paper predicts areas of future change, discusses ways in which EOs can immediately strengthen their exempt status to avoid unnecessary UBIT, and suggests principled arguments which can be used to halt additional unwarranted incursions by tax "reformers" and "simplifiers."

Distributions From Revocable Trusts And Estate Inclusion, Mark A. Segal

Akron Tax Journal

In this article analysis is made of the tax law and issues concerning the estate tax treatment of distributions made from a revocable trust within three years of death.

The Supreme Court And State Restraints On Cpa Business Solicitation, Peter E. Millspaugh

Akron Tax Journal

Over the last two decades, the United States Supreme Court has ruled on a number of questions with a direct bearing on the accounting profession. Extending this legacy, the High Court has once again entered the world of the practicing accountant to examine the Constitutional scope of State Boards of Accountancy to restrict direct, in-person, uninvited business solicitation within the profession. The High Court's findings and decision were delivered recently in the case styled Edenfield v. Fane, which considered a sole practitioner's challenge to solicitation restrictions adopted by the state of Florida. This ruling carries some important implications for …

Choice Of Business Tax Entity After The 1993 Tax Act, Craig J. Langstraat, K. Dianne Jackson

Akron Tax Journal

The first section of this article presents a discussion of the decision itself, as well as a description of each of the most common types of business forms. The second section provides a summary of the tax classification requirements imposed on certain entities by the Internal Revenue Service (IRS). The third and fourth sections examine the non-tax and tax considerations of the choice of entity decision. A chart is also provided which summarizes the non-tax and tax considerations addressed in the article (see Appendix A).

Income Tax Practice And Certified Public Accountants: The Case For A Status Based Exemption From State Unauthorized Practice Of Law Rules, Matthew A. Melone

Akron Tax Journal

The purpose of this article is to examine the application of unauthorized practice of law restrictions to certified public accountants engaged in income tax practice. Prior to my admission to the bar, I had been a practicing certified public accountant and, like many of my colleagues, did not believe that the scope of my profession's services in tax matters was subject to serious dispute. However, exposure to attorneys, particularly those not in tax practice, has led me to conclude that the bar has not come to any universally agreed upon conclusions about the role that certified public accountants may properly …

Employment Taxes: What Can The Small Businessman Do?, Kirsten Harrington

Akron Tax Journal

This article focuses on two of the employment taxes, FICA and FUTA. Part I surveys the payroll tax regime and the consequences of running afoul of it. Part II considers the recent history of dividend recharacterizations in the S corporation shareholder-employee context. Part III considers what would be "reasonable (minimum) compensation" for a shareholder-employee in an S corporation. Finally, Part IV takes up current, lively developments in the perennial debate between the Service and small business over independent contractor status.

The Innocent Spouse Relief: A Reconciliation Of Conflicting Judicial Interpretations, Donald C. Haley

Akron Tax Journal

This paper reviews the statutory requirements for obtaining the innocent spouse relief, briefly identifies the degree of consensus among the courts in interpreting key provisions of the statute, and then focuses on the major area of conflict in qualifying for relief: the "lack of knowledge" requirement on the part of the alleged innocent spouse. Particular attention is given to the rigid standard utilized by the Tax Court in its interpretation of this critical requirement versus the broader, more flexible standard employed by the U.S. Courts of Appeal for the Eighth and Ninth Circuits. Finally, an analysis of a workable reconciliation …

Bankruptcy Officials Vs. The Internal Revenue Service: The Beat Goes On, Craig J. Langstraat, K. Dianne Jackson

Akron Tax Journal

This author has previously addressed several areas of conflict between bankruptcy officials; i.e., trustees and judges, and the Internal Revenue Service ("IRS"). Due to continued litigation, both in the U.S. Supreme Court and in certain federal courts of appeal, some of these areas will be reevaluated in this article. In addition, new areas of conflict resulting in litigation in various levels of the federal court system will be discussed. Policy and statutory modifications will be suggested to alleviate the growing costly burden of litigation.

S Corporation Shareholders And Entity-Level Indebtedness: Is A Shareholder Ever Allowed To Deduct Losses Against Entity-Level Indebtedness?, Sumner E. Copple Iii

Akron Tax Journal

The owner of a closely-held business does not generally consider the tax implications when it is necessary to obtain financing for his business. A loan is negotiated and the borrowed funds are put to use by the business. However, in the case of a third-party loan to an S corporation,' different tax consequences may greet taxpayers conducting business as an S corporation, depending on the form of the loan transaction. Business owners adopting the S corporation form of doing business may discover that operating losses of the entity cannot be deducted due to the form of loan transactions between their …

International Tax Issues Of The U.S. Pharmaceutical Industry, Jonathan L. Mezrich

Akron Tax Journal

This article will attempt to illustrate the recent tax issues in the pharmaceutical industry, now the "scapegoat" of the nation's health care problems, which have international effects; it will also defend the necessity of research credits and other tax incentives for this recently revived industry. Finally, it will attempt to evaluate the concerns raised by Gerald Mossinghoff of the PMA in his testimony before Congress.

The Excludability Of Damages For Personal Injury After The Supreme Court's Decision In Burke, Ray A. Knight, Lee G. Knight, Wayne Nix

Akron Tax Journal

The scope of the personal injury exclusion under Internal Revenue Code § 104(a)(2) has been significantly broadened since the mid-1980's as the result of numerous court decisions in the areas of reputation and discrimination injuries. In our increasingly litigious society, more tax cases contesting the excludability of damages recoveries are expected. In United States v. Burke, decided May 26, 1992, the Supreme Court resolved an important issue regarding excludability from federal taxation of damages received in discrimination cases. Unfortunately, the case was decided on narrow grounds, which may only add to, rather than reduce, the conflict among the lower …