Tax Law Commons^™

Federalism And Phantom Economic Rights In Nfib V. Sibelius, Matthew Lindsay

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Few predicted that the constitutional fate of the Patient Protection and Affordable Care Act would turn on Congress’ power to lay and collect taxes. Yet in NFIB v. Sebelius, the Supreme Court upheld the centerpiece of the Act — the minimum coverage provision (MCP), commonly known as the “individual mandate” — as a tax. The unexpected basis of the Court’s holding has deflected attention from what may prove to be the decision’s more constitutionally consequential feature: that a majority of the Court agreed that Congress lacked authority under the Commerce Clause to penalize people who decline to purchase health insurance. …

What's Wrong With A Federal Inheritance Tax?, Wendy G. Gerzog

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Scholars have proposed a federal inheritance tax as an alternative to the current federal transfer tax, but there are serious flaws with that idea. In existing inheritance tax systems, those problems include: (1) different tax rates and exemptions based on the decedent’s relationship to the beneficiary; (2) the lack of a tax on lifetime gratuitous transfers, including gifts with retained interests or control; and (3) the persistence of most current valuation distortion abuses. In any inheritance tax model, moreover, there would be significantly decreased compliance rates and increased administrative costs because by focusing on the transferees instead of the transferor, …

Pass-Through Entity Reform: Is A Major Overhaul Necessary?, Walter D. Schwidetzky

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No abstract provided.

Van Alen: A Reasonable Consistency, Wendy G. Gerzog

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In Van Alen, the Tax Court held that the duty of consistency required that two of the decedent’s children use the section 2032A basis valuation figures to determine gain on the sale of their interest in the decedent’s ranch, which was left to them in trust. The siblings had argued that their stepmother erroneously completed their father’s estate tax return.

Schedularity In U.S. Income Taxation And Its Effect On Tax Distribution, Henry Ordower

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Income tax systems in some countries follow primarily schedular models that classify income by type, match it with deductions from the same class, and compute a separate tax on each class. The United States income tax uses a global tax model under which it taxes citizens and permanent residents on their worldwide income without regard to source or character. The United States system is not purely global but includes schedular elements. This Article exposes embedded schedularity in the United States income tax in the three principal areas of investment income, personal services income, and tax free income. The Article tests …

Tax Court Sends Message On Valuation In Richmond, Kerry A. Ryan

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In Estate of Helen P. Richmond, the Tax Court determined the proper value for estate tax purposes of a minority interest in a family-owned corporation holding mostly appreciated securities. The court also sustained an accuracy-related penalty against the estate, finding that it used an unsigned draft report by a noncertified appraiser as the basis for the stock valuation reported on Form 706.

Eitc As Income (In)Stability?, Kerry A. Ryan

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Congress enacted the Earned Income Tax Credit (EITC) to entice poor single mothers to work (or work more) as a means of lifting themselves out of poverty. Its design as a wage subsidy that phases out at higher earnings levels is intended to accomplish this goal. A strong labor market is crucial to the success of work-based benefit programs, like the EITC. The EITC can motivate female household heads to work (or work more) but they cannot act on that motivation if no jobs or additional hours exist. This article demonstrates that during economic downturns, the EITC wage subsidy contributes …

Valuation Lessons From Estate Of Adell, Kerry A. Ryan

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In Estate of Adell, the Tax Court determined that the correct value of a decedent’s interest in a closely held corporation was the figure reported on the original estate tax return. The court rejected alternative values as either using the incorrect valuation method or failing to account for the significant value of a key employee’s personal goodwill.

Income Imputation: Toward Equal Treatment Of Renters And Owners, Henry Ordower

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This chapter argues that fundamental fairness principles demand changes in U.S. tax law to place those who rent on an equal tax footing with those who own their residences. The disparity in tax treatment of owners and renters results primarily from the failure of the tax law to include the use value from investment of capital in a personal residence in the incomes of owners. While the yield from investment in a personal residence is not cash, the yield is valuable as it replaces an outlay for dwelling use the owner otherwise would have to make. That occupancy right as …

Charitable Contributions Of Services: Charitable Gift Planning For Non-Itemizers, Henry Ordower

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This Article examines the tax treatment of charitable contributions and concludes that contributors who do not itemize their deductions (nonitemizers) should contribute their services to charity whenever possible rather than contributing cash or property. Charitable donees similarly should embrace opportunities to accept and utilize service contributions from their donor bases, give service contributions as much recognition as money or property contributions, and encourage their lower-income donors to render services rather than giving money earned with performance of services. The Article suggests that nonitemizing taxpayers are the donors who have the most “skin in the game” for charitable contributions in terms …

Retreat From Progressive Taxation In The Swedish Welfare State: Does Immigration Matter?, Henry Ordower

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This paper questions whether late twentieth century immigration patterns may have contributed to retreat from progressive taxation in Sweden (and elsewhere). The paper applies critical methodology to ask whether the societal generosity reflected in development of Sweden’s welfare state yielded to greater parsimony as Sweden opened its borders to ethnically and racially diverse groups of immigrants. The paper explores whether Sweden’s loss of societal homogeneity facilitated the development of a political climate in which protecting traditional Scandinavian-owned capital from taxation became acceptable. Social science literature already has detected various unintentional ethnic and gender biases in delivery of welfare services and …

Graev: Conditional Facade Easement, Wendy G. Gerzog

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In Graev v. Commissioner, the Tax Court decided whether the taxpayers’ donations of a facade easement and cash contributions were conditional gifts and therefore disallowable as charitable deductions under the requirements of the regulations. The court reviewed the facts to determine whether the condition was allowed because it was “so remote as to be negligible.” The taxpayers argued that case law at the time of the donation allowed for a donation of between 10 and 15 percent of the value of the property, and that they had deducted a value constituting 11 percent of the property’s appraised value; that the …

Koons: Interest Deduction And Flp Valuation Practice Pointers, Wendy G. Gerzog

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The Tax Court's Koons decision explains the rules for allowing an estate to deduct interest payments, and it details how the court arrived at a determination of the value of a family limited liability company interest.

Valuing Fractional Interests In Art For Estate Tax Purposes, Wendy G. Gerzog

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It is difficult to value fractional interests in art because there is virtually no market in those interests. Nevertheless, the Tax Court in Estate of Elkins valued the decedent’s fractional interests in multiple artworks, which the decedent and his children highly cherished. First, the court addressed the restricted agreements under section 2703 and then the court determined the value of decedent’s interests in the art.

When Sommers Are Winters: Do Blanks Denote Revocability?, Wendy G. Gerzog

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In Sommers, ruling on both parties’ motions for partial summary judgment, the Tax Court dealt with claims of issue preclusion and collateral estoppel, equitable apportionment, the completion of gifts of limited liability company interests, and retained powers that would cause estate tax inclusion.

Two aspects of Sommers held particular interest for me. The first is that the parties appear to be arguing their opponent’s conventional position. The second is that the court grappled with whether the blanks left in the gift documents were immaterial to gift completion; however, the court did not address whether the decedent’s completed gifts qualified for …

Wimmer Wins Flp Annual Exclusions, Wendy G. Gerzog

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In Wimmer, the Tax Court held that the income stream from a taxpayer’s gifts of family limited partnership interests was eligible for the annual exclusion. By comparing the income interest in the partnership’s dividend paying marketable securities to the income interest in a trust, the court made Wimmer a winner. But does the opinion logically lead to that conclusion?

Utopian Visions Toward A Grand Unified Global Income Tax, Henry Ordower

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Over the past several decades, many countries that historically relied on progressive taxes on income, wealth, and decedents’ estates for much governmental revenue have shifted to less progressive and regressive taxes on labor and consumption. Reasons for the shift are many but include international tax competition as world economies have become increasing global. This paper assumes that progressive taxes remain the best and fairest choice for providing governmental revenue, so that a fundamental change in the scope of the progressive income tax is essential to protect progressivity.

The paper argues that the rapid growth of international cooperation on economic and …

The Corporate Income Tax: United States Of America Report, Henry Ordower

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In the context of a European project describing variations in the structure of the corporate income tax, this paper briefly describes the United States corporation income tax and contextualizes it within the broader category of business entity taxation. The paper identifies the various tax models that the United States uses for business entities and discusses the historical delinking of limited liability protection for owners and managers from traditional double taxation.

Preserving The Corporate Tax Base Through Tax Transparency, Henry Ordower

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International corporate tax competition continues to exert pressure on legislatures to reduce corporate tax rates as well as the rate imposed on shareholders. To combat this pressure, this commentary recommends eliminating the corporate income tax. Instead corporations should become tax transparent so that a full taxon corporate income is imposed on corporate owners but collected initially at corporate level through a required withholding tax at the maximum rate applicable to individuals. Contemporary data processing capacity enables corporations to track share ownership and report to shareholders amounts withheld on their behalf so that they may include their shares of corporate income …

Kite: Irs Wins Qtip Battle But Loses Annuity War, Kerry A. Ryan

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In Kite, the Tax Court held that a 10-year deferred annuity constituted adequate and full consideration for a transfer of family partnership interests, even though the transferor died before receiving any payments. The court also held that the liquidation of a qualified terminable interest property trust and subsequent sale of its assets constituted a disposition of the qualifying income interest for life, resulting in a deemed transfer of the entire trust under section 2519. Ryan discusses those holdings and two more issues that were not raised in the Tax Court proceeding but are clearly implicated by the Kite facts.

United States Of America: The Burden Of Proof In Tax Matters, Henry Ordower

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This United States report responds to a questionnaire that the general reporters prepared for the 2011 meeting of the European Association of Tax Law Professors in Uppsala, Sweden, June 3-5, 2011. The report describes and analyzes the U.S. law on burden of proof and burden of production in tax matters in the context of tax law procedure, including the settlement function of appeals and information reporting, uncertain tax positions (Form UTP) and foreign accounts of U.S. taxpayers. This report also addresses the interplay of burden of proof and the anti-abuse provisions, including the “economic substance” clarification in section 7701(o) and …

Not All Defined Value Clauses Are Equal, Wendy G. Gerzog

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Defined value clauses used to value nonmarketable family limited partnership (FLP) interests create valuation distortions and other public policy issues. This paper describes these abuses and proposes the employment of restrictions similar to those applied to pecuniary formula marital deduction clauses.

The article explains how pecuniary formula marital deduction provisions created valuation distortions by allowing for undervaluation of the marital share that were remedied by the IRS’s Rev. Proc. 64-19 and the enactment of section 2056(b)(10). The article analyzes recent case law expanding the use of defined value clauses into the FLP area and criticizes the courts for not applying …

Facade Easement: Inexpert Valuation, Wendy G. Gerzog

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The article discusses the recent Dunlap decision, which involved facade easement transfers to the National Architectural Trust, a qualified charity that preserves building easements across the country, although most are in New York City. Although allowing a deduction for their cash contributions to NAT to enforce the easement and not finding any penalties applicable, the Tax Court held that despite two valuation reports written by accepted valuation experts, the taxpayers had not established any value for their easement.

Wandering Far Afield With Defined Value Clauses, Wendy G. Gerzog

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The Wandry decision extends the application of defined value clauses beyond those family limited partnership cases that transfer any excess value to a charity. In Wandry, the Tax Court reads Procter narrowly and ignores the fundamental rationale of Robinette.

Defined Value Clauses And Fair Market Value, Wendy G. Gerzog

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In Hendrix the Tax Court considered the issues of whether defined value clauses were the result of arm’s-length transactions and whether they were void as against public policy. The underlying dispute was whether the taxpayers’ transfers of the John H. Hendrix Co. stock were valued at fair market value. With a decision favoring the taxpayers, the defined value clauses in both McCord and Hendrix impede the accurate valuation of taxable gifts to family members and of deductible charitable gifts.

Boomer-Ang Eldercare: Deductible Claim?, Wendy G. Gerzog

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In this article, Gerzog discusses Estate of Olivo, in which the Tax Court determined the deductibility under section 2053 of a claim against the decedent’s estate for eldercare services provided by a family member.

Schedularity In U.S. Taxation, Its Effect On Tax Distribution, Comparison With Sweden, Henry Ordower

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The United States derives from a global income tax model under which it taxes it citizens and permanent residents on all their worldwide income without regard to the source of that income. Under a pure global model, the United States would combine income and deductions in a single tax computation. Other countries including Germany and Sweden originate in schedular income tax models under which the tax system classifies income by type, matches it with deductions from the same class, and computes a separate tax on each class. Neither the United States’ global model nor Germany’s or Sweden’s schedular models are …

Flp Loss, But Crummey Win, Wendy G. Gerzog

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In Turner the Tax Court determined that section 2036 applied to the decedent’s transfers of assets to his family limited partnership but that the insurance premiums he paid indirectly to his insurance trust qualified for the annual exclusion.

The New Super-Charged Pat (Power Of Appointment Trust), Wendy G. Gerzog

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This article proposes to repeal the QTIP provisions in order to collect revenue now for transfers that are essentially transfers to third parties and not to the decedent's spouse. Because there are advantages of increased flexibility attendant to a QTIP as opposed to a PAT, this article proposes to take those repealed QTIP benefits and attach them to the PAT, which would greatly enhance that marital deduction trust form. A super-charged PAT would thereby be able to preserve the decedent's GST tax exemption (like a reverse QTIP), create a decedent's by-pass trust by allowing a PAT (or a partial PAT) …

Excluding Expert Valuation Testimony, Wendy G. Gerzog

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In Boltar, a case in which the Tax Court addressed the valuation of a conservation easement, the court ruled on the admissibility of expert testimony.