Tax Law Commons^™

Nonprofit College Crash: Enforcing Board Fiduciaries Through Increased Accountability And Transparency In The Irs Form 990 Procedure, Kaleb Paul Byars

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Since 1997, the United States has experienced a steady increase in college closings. Private, nonprofit colleges are the most prevalent among these affected institutions. A 2017 study confirmed that 177 colleges failed a U.S. Education Department test for “financial responsibility.” Of these 177 colleges, well over half are private nonprofits. Further, several colleges have closed since the study was completed. It is reasonable to conclude the financial irresponsibility of these schools contributes to their closures. ...

Part I describes fiduciary duties of nonprofit board members and instances of their failure. Part II discusses inadequate nonprofit oversight and provides information regarding …

Us And Capital Flight, Reuven S. Avi-Yonah

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The recent leaks of the Panama and Paradise Papers have highlighted the difficulty of taxing the income of residents of developed and developing offshore countries. The basic problem is that such income is subject to neither withholding at source nor information reporting. In the absence of both withholding and reporting, it is easy to use tax havens to hide such income from tax authorities. Estimates of the scope of the problem vary widely, but it is certainly larger than the $200 billion in estimated losses from legal corporate tax avoidance.

This article explains the historic roots of this problem, which …

If Not Now, When? U.S. Tax Treaties With Latin America After Tcja, Reuven S. Avi-Yonah

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Since the 1990s, the US tax treaty network has expanded to include most large developing countries. However, there remains a glaring exception: The US only has two tax treaties in Latin America (Mexico and Venezuela), and one pending tax treaty (Chile). The traditional explanation for why the US has no treaty with, for example, Argentina or Brazil is the US refusal since 1957 to grant tax sparing credits to developing countries. Before the Tax Cuts and Jobs Act of 2017 (TCJA), this explanation was wrong, because the combination of deferral and cross-crediting meant that tax holidays in a source country …

Toward A 21st-Century International Tax Regime, Reuven S. Avi-Yonah, Kimberly A. Clausing

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The international tax regime is almost a century old, and it is showing its age. In recent decades, the regime could be maintained despite increasing evidence that some of its key components, such as the arm’s-length standard or permanent establishment threshold, were unfit for a 21st-century economy. However, starting with the U.K. diverted profits tax (2015), Australia’s multinational anti-tax-avoidance law (2015), and India’s equalization levy (2016), it has become clear that many countries are unwilling to live with a situation in which large U.S. technology companies (such as Amazon, Apple, Facebook, Google, and Netflix) earn billions in profits by exploiting …

India's New Profit Attribution Proposal And The Arm's-Length Standard, Reuven S. Avi-Yonah, Ajitesh Kir

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A recent Indian public consultation document on amending India’s rules for profit attribution to permanent establishments represents the first time a national government has proposed abandoning the arm’s-length standard. In this article, the authors discuss that document, as well as the OECD’s recent consideration of using formulas to allocate profits to market jurisdictions, and they ponder whether those developments indicate a larger movement away from the arm’s-length standard in favor of a unitary tax system.

Amazon Goldcrest Project And The Relevance Of Comparability Analysis Under The Arm's Length Principle, Reuven S. Avi-Yonah

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The arm’s length principle, which has long been the guiding rule in the area of transfer pricing, in recent years is increasingly challenged. One of the focus points of discussion is the comparability analysis of intra-group and independent transactions. Especially intangibles do not lend themselves to such analysis, because they are unique in a way that does not match with existent market equilibria. The analysis of the Amazon case in this article reflects this argument.

Stock Market Reactions To India's 2016 Demonetization., Vikramaditya S. Khanna, Dhammika Dharmapala

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On November 8, 2016, the Indian government made a surprise announcement that certain currency notes (representing 86 percent of the currency then in circulation) would no longer be legal tender (although they could be deposited in banks over a limited period). The stated reason for this sudden “demonetization” was to combat tax evasion and corruption associated with “unaccounted for” cash. We compute abnormal returns for different subsamples of firms—defined by industry, ownership structure, and other characteristics—on the Indian stock market around this event. There is little evidence that sectors thought to be associated with greater tax evasion or corruption experienced …

Complete Distributive Rules And The Single Tax Principle: A Review Of Recent Italian Case Law, Reuven S. Avi-Yonah, Gianluca Mazzoni

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The authors, in this article, examine the application of complete distributive rules as set out in various tax treaties as it relates to the single tax principle by reference to recent Italian case law.

On 11 October 2018, in Decision No. 25219, the Italian Corte Suprema di Cassazione (Supreme Court, CSC) confirmed that treaty provisions limiting the exercise of the domestic power to tax by the source state also apply where the residence state does not actually tax the relevant item of income. In that case, where a tax treaty attributes exclusive tax jurisdiction over an item of income to …

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

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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 …

America's (D)Evolving Childcare Tax Laws, Shannon Weeks Mccormack

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Proponents have touted the ability of the Tax Cuts and Jobs Act (the TCJA) — enacted in the twilight of 2017 — to help American working families. But while the TCJA expanded some benefits available to parents with dependent children, these parental tax benefits may be claimed regardless of whether or to what extent childcare costs are incurred to work outside the home. To help working parents with these costs (which are often their largest expense), Congress might have turned to two other mechanisms in the tax law — the “child and dependent care credit” and the “dependent care exclusion.” …

Attacking Innovation, Xuan-Thao Nguyen, Jeffrey A. Maine

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Economists generally agree that innovation is important to economic growth and that government support for innovation is necessary. Historically, the U.S. government has supported innovation in a variety of ways: (1) a strong legal system for patents; (2) direct support through research performed by government agencies, grants, loans, and loan guarantees; and (3) indirect support through various tax incentives for private firms. In recent years, however, we have seen a weakening of the U.S. patent system, a decline in direct funding of research, and a weakening of tax policy tools used to encourage new innovation. These disruptive changes threaten the …

Applying The First Amendment To The Internal Revenue Code: Minnesota Voters Alliance And The Tax Law’S Regulation Of Nonprofit Organizations’ Political Speech, Edward A. Zelinsky

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On its face, Minnesota Voters Alliance v. Mansky is about which T-shirts, hats and buttons voters can wear at the polls. However, the U.S. Supreme Court’s First Amendment analysis in Minnesota Voters Alliance extends beyond apparel at polling places. That decision impacts the ongoing debate about the Johnson Amendment, the now controversial provision of the Internal Revenue Code which forbids Section 501(c)(3) organizations from intervening in political campaigns. Minnesota Voters Alliance also affects the proper construction of Section 501(c)(3)’s ban on lobbying by tax-exempt entities as well as other provisions of the tax law taxing and precluding campaign intervention by …

Crisis-Driven Tax Law: The Case Of Section 382, Albert H. Choi, Quinn Curtis, Andrew T. Hayashi

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At the peak of the 2008 financial crisis, the Internal Revenue Service (IRS) issued Notice 2008–83 (the Notice), administrative guidance that limited Internal Revenue Code (the Code) section 382, an important tax rule designed to discourage tax-motivated acquisitions. Although styled as a mere interpretation of existing law, the Notice has been widely viewed as an improper exercise of the IRS’s authority that undermined its legitimacy. But did the Notice work? There were many extraordinary interventions during the financial crisis that raised questions about eroding the rule of law and the long-term destabilizing effects of bail­outs. In a financial crisis, regulators …

Section 4968 And Taxing All Charitable Endowments: A Critique And A Proposal, Edward A. Zelinsky

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No abstract provided.

Perils Of Tax Reform, James R. Hines Jr.

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Tax reforms dangle possibilities of improving the tax system, but are fraught with perils that are evident from the 2017 U.S. experience and caution against frequent reforms of its ilk. The first peril is that reforms containing tax provisions selected simply on the basis of their projected revenue contributions will produce less tax revenue than anticipated, illustrative calculations suggesting shortfalls of roughly 8–16 percent. The second peril is that reforms will not advance the objectives of efficiency and tax equity to the extent that they include provisions intended to influence future tax legislation or government spending. The third peril is …

Profit-Split Method: Time For Countries To Apply A Standardized Approach, Jeffery M. Kadet, Tommaso Faccio, Sol Picciotto

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Now that the OECD has issued its final guidance on the action 10 profit-split method, individual countries must determine how they might consider and apply the profit-split method.

It’s true that some countries have large and well-staffed transfer pricing audit groups that include economists and other tax professionals knowledgeable in the application of transfer pricing principles and rules. However, those resources are never enough to match the legions of specialists that can be deployed by large multinational groups.

The situation is even worse elsewhere. Most countries not only have significant resource and personnel constraints, but they also simply do not …

The International Implications Of Wayfair, Reuven Avi-Yonah

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In this article, Avi-Yonah argues that the Court’s recent decision in Wayfair has implications for the EU’s struggle with taxing the digital economy, as well as for the broader international effort to update international tax rules for the 21st century — that is, it bolsters the argument for dispensing with the 19th-century permanent establishment concept.

Uk Governance: From Overloading To Freeloading, Richard Woodward

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The UK's ongoing political turbulence has prompted a reprise of debates from the 1970s when many concluded the country was ungovernable. Then, the most influential diagnosis conceptualised the UK's governance problem as one of ‘overloading’ caused by the electorate's excessive expectations. This article argues that these accounts overlooked another phenomenon besieging UK governance during this period. This phenomenon was freeloading: the withering of government capacity deriving from the ability of actors to enjoy the benefits of citizenship without altogether contributing to the cost. In the interim, these problems have become endemic, not least because of the unspoken but discernible policy …

Evaluating Beps, Reuven Avi-Yonah, Haiyan Xu

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This article evaluates the recently completed Base Erosion and Profit Shifting (BEPS) project of the G20 and OECD and offers some alternatives for reform.

Business Tax Burdens And Tax Reform, James R. Hines Jr.

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Tax reforms affect economic performance by changing incentives for business formation, expansion, and operation. The United States has the highest corporate tax rate among OECD countries in 2017, and despite offering significant additional deductions, exclusions, and tax credits, imposes the heaviest tax burdens. This paper offers a new measure of corporate tax burdens based on information in tax expenditure budgets; this measure implies that the burden of U.S. corporate taxation in 2017 is equivalent to that produced by a corporate tax rate between 31.2-34.6% without additional deductions, exclusions, or tax credits. Efficient design of a business tax system encourages activities …

Territoriality And The Original Intent Of Subpart F, Reuven S. Avi-Yonah

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On April 26 President Trump issued a one page tax reform outline that included territoriality - that is, making dividends from the non-subpart F income of controlled foreign corporations tax exempt. Territoriality is also included in the House Republican "Better Way" blueprint, and was supported by the Obama administration and in bipartisan legislation introduced in 2016 by Senate Finance Committee members Rob Portman, R-Ohio, and Charles E. Schumer, D-N.Y.

Problems With Destination-Based Corporate Taxes And The Ryan Blueprint, Reuven S. Avi-Yonah, Kimberly Clausing

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With the election of Donald Trump and the Republican Party’s domination of Congress, House Speaker Paul Ryan’s blueprint for fundamental tax reform requires more careful analysis. The Ryan blueprint combines reduced individual rates with a destination-based cash flow type business tax applicable to all businesses. The destination-based business tax at the center of the blueprint has several major problems: It is incompatible with our WTO obligations, it is incompatible with our tax treaties, and it will not eliminate the problems of income shifting and inversions it is designed to address. In addition, these proposals generate vexing technical problems that are …

Gaars And The Nexus Between Statutory Interpretation And Legislative Drafting: Lessons For The U.S. From Canada, Reuven S. Avi-Yonah, Amir Pichhadze

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Rules targeting specific known schemes are not the only tools available in the battle against tax avoidance. Legal systems also use measures that apply generally. The U.S. for example has tended to rely heavily on general doctrines. One such doctrine which is discussed in part 2 of this chapter is the “economic substance” doctrine. Yet as Xiong and Evans recently pointed out “although such judicial doctrines can be used to deal with various aspects of complicated tax abuse judges tended sometimes to limit and sometimes to enlarge the scope of jurisprudential interpretation leading to substantial uncertainty and risk.” One way …

International Tax Avoidance -- Introduction, Reuven S. Avi-Yonah

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Tax avoidance and evasion is a hot topic. On the evasion (illegal activity by individuals) front, the various leaks culminating in the Panama Papers have once again revealed the scope of evasion by the global elite. Gabriel Zucman conservatively estimated the annual revenue loss at $200 billion. On the tax avoidance (legal activity by corporations) front, the OECD BEPS project has estimated the scope of avoidance by multinationals at between $100 and $240 billion per year. By comparison, total US corporate tax revenues are about $400 billion per year. The articles in this volume reflect various aspects of these troubling …

Postpartum Taxation And The Squeezed Out Mom, Shannon Weeks Mccormack

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Faced with too-short (or nonexistent) maternity leaves, inflexible work schedules, and the soaring costs of childcare in the United States, many new mothers temporarily leave the workforce to care for their young children. Although media attention has focused on the “opt-out” mom, many more mothers are squeezed out of the external workplace. But mothers that try to return to work may discover that it is difficult to do so, as employers have been shown to be less likely to hire mothers than others. A mother that does reenter may find that even short periods out of work cost (sometimes far) …

Taking The First Bite: Who Should Tax Apple's $187 Billion In Ireland, Reuven S. Avi-Yonah, University Of Michigan Law School

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On December 19, 2016, the European Commission (hereinafter “Commission”) published its final decision in the Apple State aid case. The Commission concluded that two tax rulings granted in 1991 and 2007 on the allocation of profits to the Irish branches of Apple Sales International (“ASI”) and Apple Operations Europe (“AOE”) amounted to illegal state aid, and ordered Ireland to immediately recover this aid from Apple. The key issue in the Apple decision is where Apple’s foreign income ($187 billion, as of 2016) should be regarded as being generated. In the authors’ opinion, there is almost no basis for any argument …

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

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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 …

Simplexity: Plain Language And The Tax Law, Joshua D. Blank, Leigh Osofsky

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In recent years, federal government agencies have increasingly attempted to use plain language in written communications with the public. The Plain Writing Act of 2010, for instance, requires agencies to incorporate "clear and simple" explanations of rules and regulations into their official publications. In the tax context, as part of its "customer service" mission, the Internal Revenue Service bears a "duty to explain" the tax law to hundreds of millions of taxpayers who file tax returns each year. Proponents of the plain language movement have heralded this form of communication as leading to simplicity in tax compliance, more equitable access …

Three Steps Forward, One Step Back? Reflection On 'Google Taxes' And The Destination-Based Corporate Tax, Reuven S. Avi-Yonah

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A large puzzle underlies the recent G20 and OECD Base Erosion and Profit Shifting (BEPS) project. If the scope of BEPS is as broad as the reports suggest, why are corporate tax revenues in the OECD so robust?

The final OECD report on BEPS action 11 suggest that BEPS activities result in between $100 and $240 billion in annual lost revenue from corporate income taxes (CIT) on a global basis. The wide spread between these two numbers indicates the significant uncertainty involved. But even the higher number represents a relatively small portion of total global CIT revenues, since it is …

Country By Country Reporting And Corporate Privacy: Some Unanswered Questions, Reuven S. Avi-Yonah

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Corporate privacy is an oxymoron. Individuals have a right to privacy, which the Supreme Court has recognized at least since Griswold v. Connecticut (1965). Warren and Brandeis’ famous defense of the right to privacy (1890) clearly applied only to individuals, because only individuals have the kind of feelings that are affected by invasions of privacy. Corporations are legal entities, and the concept of privacy does not apply to them, as the Supreme Court held in 1906. Thus, any objection to making corporate tax returns public cannot rest on the right to privacy. In fact, corporate returns were made public in …