Tax Law Commons^™

Contribution Of A Built-In Loss To A Partnership, Douglas A. Kahn

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Before 2004, it was possible to use the partnership tax provisions of the code to shift the benefit ofa loss deduction for a decline in property valuefrom the person who incurred it to another person.One method of accomplishing that goal involvedthe contribution of depreciated property to a partnership.

Retirees Beware: Don't Worry About The British-- 2013 Is Coming, Douglas A. Kahn, Lawrence W. Waggoner

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Retirees beware. The easy money policy of the Federal Open Market Committee and the 15 percent tax rate on qualified dividends have encouraaged retirees, especially middle-income retired savers, to reorient their nest eggs away from certificates of deposit, treasuries, and money market funds to dividend-paying stocks and mutual funds. According to the IRS, 43 percent of taxpayers age 65 or older reported qualified dividend income amounting to nearly half of the qualified dividend income reported by all taxpayers. By contrast, 46 percent of taxpayers age 65 or older reported net capital gains amounting to 30.5 percent of the net capital …

U.S. International Tax Reform: What Form Should It Take?, Jeffrey M. Kadet

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This article focuses solely on the big picture issue of whether international tax reform should take the form of a territorial system or an alternative full inclusion system. Of course, it is also necessary to compare these possible new systems with the current hybrid deferral system that has been in place for many years.

With little if any explanation of how it might be better for our nation and society as a whole, many persons and commentators whose companies or clients stand to benefit have called for a territorial system. Such persons have included CEOs, members of the professional tax …

Territorial W&M Discussion Draft: Change Required, Jeffrey M. Kadet

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The House Ways & Means Committee Discussion Draft proposes a territorial taxation system for the United States. This article published in Tax Notes on 23 January 2012 was taken from the author's comments on the Discussion Draft as submitted to the Committee in conjunction with a hearing held on 17 November 2011. See full comments at http://ssrn.com/abstract=1997482. The full comments include many additional issues not covered in this article.

The Discussion Draft importantly includes a dividend-received deduction of 95% instead of 100% as a mechanism to disallow expenses that are attributable to exempt foreign earnings. This mechanism causes the receipt …

Some Realism About Responsive Tax Administration, Leigh Osofsky

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No abstract provided.

Taxing Facebook Code: Debugging The Tax Code And Software, Xuan-Thao Nguyen, Jeffrey A. Maine

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This article sets out to analyze both intellectual property laws and tax systems as applied to computer software. It analyzes software within intellectual property's established doctrinal framework, a difficult task due to the fact that software can encompass some combination of the traits of copyrights, trade dress, patents, and trade secrets. It then examines both the federal and state tax systems governing software. It shows that fitting software within current tax schemes presents unique challenges, as software contains both tangible and intangible elements, is subject to varying intellectual property protections, and can be delivered through various media. The article argues …

Beyond Territoriality And Deferral: The Promise Of "Managed And Controlled", Reuven S. Avi-Yonah

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In the new version of his Stop Tax Haven Abuse Act, Sen. Carl Levin, D-Mich., once again proposed to modify the definition of residence for domestic corporations (IRC section 7701). Section 103 of the act seeks to: stop companies run from the United States claiming foreign status by treating foreign corporations that are publicly traded or have gross assets of $50 million or more and whose management and control occur primarily in the United States as U.S. domestic corporations for income tax purposes. [Emphasis in original.] This is not a new suggestion. In response to the inversions of the early …

Citizenship And Worldwide Taxation: Citizenship As An Administrable Proxy For Domicile, Edward A. Zelinsky

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The United States' worldwide taxation of its citizens is less different from international, residence-based norms than is widely believed and is sensible as a matter of tax policy. An individual's citizenship is an administrable, if sometimes overly broad, proxy for his domicile, his permanent home. Both citizenship and domicile measure an individual's permanent allegiance rather than his immediate physical presence. Because citizenship and domicile resemble each other, and because other nations often define residence for tax purposes as domicile, the U.S. system of citizenship-based taxation typically reaches the same results as the residence-based systems of these other nations, but reaches …

Fundamentals Of Wealth Transfer Tax Planning, John A. Miller

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No abstract provided.

Tax Lawyers, Tax Defiance, And The Ethics Of Casual Conversation,, Michael Hatfield

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This essay is to help tax lawyers decide how to handle casual conversations centered on denying, defying, or destroying the tax system. One option is to walk away, ending the conversation and silencing the dialogue. The next option is to engage. I want to persuade tax lawyers that they should usually engage in the conversation. I try to do this in Part III.

There are two kinds of legal ethics essays, and one must choose which kind to write, and it is useful to the reader to know upfront which kind the author chose to write. One kind begins with …

Exclusion From Income Of Compensation For Services And Pooling Of Labor Occurring In A Noncommercial Setting, Douglas A. Kahn

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When cash is received for services, it typically will constitute gross income to the recipient.' But what if the payments are made in a noncommercial setting such as the payment by a parent to a child for mowing the lawn or performing household chores? As discussed later in this Essay, there are reasons to conclude that such payments do not constitute income. The problem of how to treat receipts from a noncommercial activity frequently arises in the context of an exchange of services. A similar problem arises when services are provided by several persons pursuant to a pooling of labor …

The Case For Dividend Deduction, Reuven S. Avi-Yonah, Amir C. Chenchinski

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The December 2010 compromise between President Barack Obama and the Republicans extended the 15% tax rate on dividends through the end of 2012. At that point, however, the rate may revert to the Clinton administration rate-39.6%-or be raised to 20%-as proposed by the Obama Administration. Thus, the United States may either abandon corporate-shareholder integration, maintain partial integration, or perhaps even adopt the George W Bush administration's 2003 proposal to exempt dividends altogether-as advocated by some Republicans in Congress. Given this uncertainty and the likelihood of additional Congressional action, now may be a good time to revisit the integration issue. Another …

Tax Policy And The Efficiency Of U.S. Direct Investment Abroad, Mihir A. Desai, C. Fritz Foley, James R. Hines Jr.

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Deferral of U.S. taxes on foreign source income is commonly characterized as a subsidy to foreign investment, as reflected in its inclusion among “tax expenditures” and occasional calls for its repeal. This paper analyzes the extent to which tax deferral and other policies inefficiently subsidize U.S. direct investment abroad. Investments are dynamically inefficient if they consistently generate less in returns to investors than they absorb in new investment funds. From 1982–2010, repatriated earnings from foreign affiliates exceeded net capital investments by $1.1 trillion in 2010 dollars, and from 1950–2010, repatriated earnings and net interest from foreign affiliates exceeded net equity …

Taxation As Regulation: Carbon Tax, Health Care Tax, Bank Tax And Other Regulatory Taxes, Reuven S. Avi-Yonah

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This paper addresses three questions: 1. Is regulation a legitimate goal for taxation? 2. Which tax is best suited for regulation? 3. Would it be better to allocate just one goal per tax among the major taxes (individual and corporate income tax and VAT)? It then analyzes the proposed bank tax and the enacted health care tax as regulatory taxes, and concludes that the first is desirable (as is a carbon tax) but the second is not.

U.S. Defense Contracts During The Tax Expenditure Battles Of The 1980s, Susan J. Guthrie, James R. Hines Jr.

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This paper considers the impact of the tax treatment of military contractors on the cost and timing of U.S. military procurement. Prior to the early 1980s, taxpayers were permitted to defer tax obligations on profits earned from long-term contracts. Legislation passed in 1982, 1986, and 1987 required that at least 70 percent of the profits earned on long-term contracts be taxed as accrued, thereby significantly reducing the tax benefits associated with long term contracting. Comparing contracts that were ineligible for these tax benefits with those that were eligible, it appears that between 1981–1989 the duration of U.S. Department of Defense …

Narrowing The Tax Gap Through Presumptive Taxation, Kyle D. Logue, Gustavo G. Vettori

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Can the United States government significantly reduce the federal tax gap? This question has attracted a great deal of scholarly attention over the years and has been the focus of numerous government reports. The "tax gap" is the official term for the Treasury Department's estimate of the difference between what American taxpayers should pay to the federal government in a given tax year (that is, the amount of tax they owe, based on a reasonable interpretation of existing tax laws as applied to particular taxpayers' circumstances) and what they actually pay. This estimate is derived from painstaking and detailed audits …

Formulary Apportionment: Myths And Prospects - Promoting Better International Policy And Utilizing The Misunderstood And Under-Theorized Formulary Alternative, Reuven S. Avi-Yonah, Ilan Benshalom

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This article seeks to re-examine the formulary alternative to transfer pricing by inquiring whether partial integration of formulary concepts into current practices would offer a reasonable alternative to transfer pricing rules. We believe that the key to achieving an equitable and efficient allocation of MNE income is to solve the problem of the residual, i.e., how to allocate income generated from mobile assets and activities whose risks are borne collectively by the entire MNE group. These assets and activities generate most of the current transfer pricing compliance and administrative costs, as well as tax avoidance opportunities. A limited formulary tax …

Too Close To Home: Limiting The Organizations Subsidized By The Charitable Deduction To Those In Economic Need, Shannon Weeks Mccormack

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The charitable deduction allows taxpayers to deduct amounts donated to organizations pursuing statutorily designated purposes from their otherwise taxable income. By lowering the after-tax cost of giving and encouraging taxpayers to donate more than they otherwise would, the charitable deduction subsidizes a broad variety of organizations. Some of these organizations provide widespread societal benefits, while others provide narrower benefits that remain closer to the taxpayer-donor’s home. To evaluate these current laws, this Article focuses on efficiency criteria, which limit subsidized organizations to those with donor support that does not cover the costs needed to optimally provide goods and services. Existing …

Online Retailers' Tax-Free Lunches, George Mundstock

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No abstract provided.

Winn And The Inadvisability Of Constitutionalizing Tax Expenditure Analysis, Edward A. Zelinsky

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No abstract provided.

The Case Against Strategic Tax Law Uncertainty, Leigh Osofsky

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No abstract provided.

State Fiscal Policies And Transitory Income Fluctuations, James R. Hines Jr.

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State and local expenditure and tax revenue respond less to the business cycle than do federal spending and revenue, thereby reducing the countercyclicality of total government expenditure and revenue. This paper considers forces responsible for the cyclical pattern of state expenditure and revenue. Annual fluctuations in state personal income are associated with small changes in state spending and significant changes in tax receipts; receipt of federal grants is associated with greater state spending. Tax collections, and to a lesser degree expenditure, of larger states are more closely associated with annual income fluctuations than are the tax collections and expenditure of …

The Redemption Puzzle, Reuven S. Avi-Yonah

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After the adoption of partial integration in 2003, there has been only a modest rise in dividends, but a sixfold increase in redemptions. This article argues that the explanation for that lies in the different treatment of dividends and capital gains to foreign shareholders and that Congress should respond by making sections 302 and 304 inapplicable to foreign shareholders.

Xilinx Revisited, Reuven S. Avi-Yonah

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On March 22 the Ninth Circuit released its new opinion in Xilinx v. Commissioner, Doc 2010-6163, 2010 WTD 55-42. 1 As has been expected since the panel withdrew its original opinion, it reversed itself and in a 2-1 opinion held for the taxpayer. The opinion makes it pretty clear why the reversal occurred. It was the result of concentrated pressure by the international tax community and the fact that the government was unwilling to defend the theory on which the panel originally decided the case: that the arm’s-length standard of the section 482 regulations does not apply to cost sharing. …

Taking The Good With The Bad: Recognizing The Negative Externalities Created By Charities And Their Implications For The Charitable Deduction, Shannon Weeks Mccormack

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The tax code allows taxpayers to deduct amounts donated to an extremely broad variety of organizations deemed to create societal benefits — that is, positive externalities. But many organizations that may receive tax-deductible contributions also cause harms. Both the tax code and subsidy theory, one of the most utilized scholarly theories developed to analyze the deduction from an economic and morally neutral perspective, fail to properly account for these negative externalities. In order to do so, one needs to look beyond the economic models utilized by subsidy theorists. For instance, there should be some limit to the types of harms …

Taxing Inheritances, Taxing Estates, James R. Hines Jr.

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This Article considers two aspects of converting the U.S. transfer tax system to one in which burdens are imposed on the basis of receipt rather than gift. The first aspect is the economic impact of distinguishing transfer tax liabilities by numbers of children in a family in addition to the total amount of transferred wealth. The second aspect is the nature of the event that triggers tax liability. Taxing on the basis of receipt raises complicated issues about generation-skipping transfers, transfers to trusts, and transfers that involve foreign as well as domestic parties, all of which are potentially influenced by …

Comparative Tax Law: Theory And Practice, Reuven S. Avi-Yonah, Guy Inbar, Omri Marian, Linneu Mello

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On 3 October 2009, a Conference on Comparative Tax Law in Theory and Practice took place at the University of Michigan Law School. It was organized by Reuven Avi-Yonah (Professor, University of Michigan Law School) and Mathias Reimann (Editor, American Journal of Comparative Law and Professor, University of Michigan Law School), and was attended by Hugh Ault (Professor of Law, Boston College Law School), Victor Thuronyi (Senior Counsel, International Monetary Fund), Brian Arnold (Professor Emeritus, University of Western Ontario), William Barker (Professor, The Dickinson School of Law, Penn State), Michael Livingston (Professor, Rutgers School of Law-Camden), Carlo Garbarino (Professor of …

Summary And Recommendations (Symposium On Designing A Federal Vat, Part I), Reuven S. Avi-Yonah

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For the past thirty-five years, the debate on fundamental tax reform in the United States has centered on whether some type of consumption tax would replace all or part of the federal income tax. In my opinion, this debate has now been decided. Given recent budgetary developments and the impending eligibility of the baby boom generation for Social Security and Medicare, we cannot dispense with the revenue from the corporate and individual income tax. Moreover, we will need huge amounts of additional revenue, and most informed observers believe that the only plausible source for such revenues is a federal value-added …

Of Coase, Calabresi, And Optimal Tax Liability, Kyle D. Logue, Joel Slemrod

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The Article proceeds as follows. Part II offers a primer on the Coase Theorem, beginning with the classic case of neighbor externalizing on neighbor (farmer and rancher), and it explains the basic invariance propositions. Part III shifts the focus to Coasean situations involving buyers and sellers in a market or contractual relationship, buyers and sellers whose market interactions cause harm to third parties. Using supply-and-demand diagrams, we illustrate (in a new way) some of the most basic findings of the economic analysis of law, including both the Coasean invariance and efficiency propositions and the Calabresian least-cost avoider idea. Also in …

Gain From The Sale Of An Income Interest In A Trust, Douglas A. Kahn

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A tax doctrine that is related to the anticipatory assignment of income doctrine, but yet different from that doctrine is variously referred to as the "substitute for ordinary income doctrine" or the "anticipation of income doctrine." This latter doctrine arises on the sale of an item. The test often utilized to determine whether that latter doctrine applies is whether the sale of an item substantively represents the receipt of a substitute for future income - i.e., are the proceeds of the sale given "in lieu of" ordinary income that the seller would have otherwise received at a later date. The …