Tax Law Commons^™

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

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Three court decisions have recently addressed the interaction of the NetInvestment Income Tax (NIIT) and U.S. tax treaties. The issue waswhether the treaty provided an independent basis for crediting a foreigntax 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 wasavailable, distinguishing Toulouse.Third, in Bruyea, the Court of Federal Claimsissued a broader opinion that allowed the credit.

Gregory, Textualism, And Tax Shelters, Reuven S. Avi-Yonah

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In this installment of Reflections With Reuven Avi-Yonah, Avi-Yonah suggests that courts should adopt a consequentialist approach to tax shelter litigation that would acknowledge the long- term risks of enabling tax shelters and seek to prevent their recurrence. In his excellent article on Gregory v. Helvering, David Elkins says that the common assumption that the case was about abuse of the tax-free reorganization provisions of the code is mistaken. Therefore, he argues, both Judge Learned Hand and the Supreme Court were wrong when they focused on whether the transaction was a “reorganization” as intended by Congress. Instead, they should have …

Three Proposals For Fixing The Tcja, Reuven S. Avi-Yonah

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The year 2025 promises to be important in U.S. tax history for three reasons. First, the expiration of the individual provisions of the Tax Cuts and Jobs Act means that Congress is very likely to enact important tax legislation to prevent tax increases for millions of individual taxpayers. Second, a new administration frequently means tax legislation, typically through budget reconciliation if the same party controls Congress (1981, 1993, 2001, 2017, 2022). Third, the trifecta of Supreme Court decisions in 2024 (Moore, Corner Post, and Loper Bright) suggests that there may be a spike in litigation challenging various tax provisions as …

Can Congress Give Unaffected Taxpayers Standing, Reuven S. Avi-Yonah

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A recurring problem in tax law arises when the IRS promulgates a regulation or a notice that is too favorable to taxpayers.1 The problem is that nobody has standing to challenge the regulation. The IRS cannot challenge its own regulation, and taxpayers affected by the regulation have no interest in challenging it (and even if they did, they cannot show a concrete injury sufficient to establish standing). Congress may intervene, but that is rare for a taxpayer-favorable regulation (indeed, Congress sometimes intervenes to block IRS attempts to roll back its own regulations). Taxpayers unaffected by the regulation do not have …

Does The U.S. Have To Be A Tax Haven?, Reuven S. Avi-Yonah

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The United States is the world’s preeminent tax haven. Tax havens are defined as allowing secrecy and having low or zero tax rates; for nonresident aliens, the United States offers both.

The secrecy results from the fact that, in many U.S. states, it is possible to form a corporate entity without having to disclose information about the identity of the owner. This situation is beginning to change because of the Corporate Transparency Act, but the law has been challenged as unconstitutional. Even this would only apply for U.S. government nontax purposes. A nonresident alien who uses a U.S. limited liability …

Should Ireland Have Taxed Apple?, Reuven S. Avi-Yonah, Nessa Ní Chasaide

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On September 10 the EU’s Court of Justice issued its long-awaited decision in the Apple state aid case. Surprisingly, it reversed the EU’s General Court decision and held that the European Commission was correct in finding that Ireland had provided prohibited state aid to Apple, and therefore Apple must pay Ireland the €13 billion in taxes that it would have paid but for the illegal subsidy. This state aid case, the largest in the EU’s history, highlights significant issues about the legal governance of corporate tax. This article examines the notable features of the Court ruling, then outlines why we …

Taxation’S Limits, Luís C. Calderón Gómez

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Countless pages have been devoted to the question of why everyone should pay tax, yet its opposite has gone largely unnoticed: why should some people and organizations not pay tax? Our tax system exempts from ordinary income taxation a wide and diverse array of people and organizations engaged in significant economic activity—from parents providing childcare services for their family to consular activities and charities operating animal shelters—seemingly without a convincing explanation. Perhaps because of the dizzying diversity of tax-exempt activities, scholars and policymakers have avoided comprehensively or coherently justifying our exemption regimes.

This Article develops a novel normative theory that …

Can The Economic Substance Doctine Be Revived?, Reuven S. Avi-Yonah

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In two recent instances, the IRS has asserted the economic substance doctrine (ESD) to challenge transactions that comply with the literal text of the code. First, in Liberty Global, the IRS successfully asserted the ESD to deny tax benefits claimed by Liberty Global — namely, a section 245A deduction for a dividend out of foreign earnings that would normally be subject to global intangible low-taxed income — by relying on a mistake in effective dates under the Tax Cuts and Jobs Act. In granting summary judgment, the district court held that the doctrine looks to whether the tax benefits achieved …

Where Is China Now On Pillar 2?, Reuven S. Avi-Yonah

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China has been relatively quiet about pillar 2 of the G20/OECD base erosion and profit-shifting 2.0 project. In a recent Tax Notes article, Xiaoli Ortega wrote:

Will China join the global tax reform club? If so, when? Although the Chinese government has made repeated positive statements about the importance of the global minimum tax reform, it has not clarified when it would modify its domestic tax laws to incorporate the pillar 2 rules. However, this does not mean that China is not preparing itself for the reform. Recall that on August 1, 2022, the State Taxation Administration issued a governmental …

The Triumph Of Tax Textualism, Reuven S. Avi-Yonah

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In Varian Medical Systems, the Tax Court held in a unanimously reviewed opinion that the taxpayer was entitled to take a section 245A deduction for an amount treated as a dividend under section 78. Section 78 provides that deemed paid foreign taxes are treated as dividends received for foreign tax credit purposes, thus grossing up the amount of the dividend by the foreign taxes attributable to it before granting the FTC. This provision is needed because otherwise the taxpayer would enjoy both a deduction and a credit for the same foreign tax. Section 245A, however, eliminates the tax on the …

Tax Delegation After Loper Bright, Reuven S. Avi-Yonah

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This paper examines the scope of the IRS and Treasury’s tax reg-writing authority after the Supreme Court’s decision in Loper Bright.

Tax In Law Schools, Michael Hatfield

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At the 2023 Association of American Law Schools Tax Section meeting, professors discussed their impressions of a decline in the number of JD students studying tax. Their impressions were consistent with declines that have been documented in similar fields. Between 2011 and 2021, U.S. accounting programs saw an 18% drop in students, while new CPA candidates declined 39% from 2010 to 2022. In the United Kingdom, the number of law schools that teach tax has diminished by 43% since 2002. This Article examines tax education in 40 U.S. law schools, focusing on course offerings and enrollment trends from 2012 to …

A Global Wealth Tax?, Reuven S. Avi-Yonah

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Mitt Romney famously said during his 2012 presidential campaign that “corporations are people.” Mindy Herzfeld’s column comparing the proposed 2 percent global wealth tax on billionaires with the corporate minimum tax (pillar 2) raises the opposite question: Are people like corporations for tax purposes? I would say no, for several reasons.

Crypto And The Exit Tax, Reuven S. Avi-Yonah

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Robert Goulder has devoted one of his excellent columns to the fascinating case of “Bitcoin Jesus.” As explained by Goulder:

Another billionaire was in the news recently for reasons that relate to taxation, although it’s doubtful he will be accused of much virtue. The man known internationally as “Bitcoin Jesus” got himself arrested in Spain on April 27. He now faces extradition to the United States, where an eight-count criminal tax indictment awaits him. Bitcoin Jesus is coming home.

This is a far cry from the Jesus born in Bethlehem who once said that it was easier for a camel …

Sourcing Derivatives: Time To Reverse The Rule?, Reuven S. Avi-Yonah

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In their excellent Tax Notes article on the application of withholding taxes on derivatives, Lorenz F. Haselberger and Michael B. Shulman write that:

A taxpayer entering into a derivative may derive income of a kind that is different from the kind of income that would have been realized had the taxpayer instead acquired the underlying asset, resulting in different U.S. withholding tax treatment.

For example, when a foreign taxpayer enters into a swap referencing an equity security or interest rate, amounts it receives that correspond to dividends or interest generally are characterized as periodic payments on a financial contract rather …

Once More: Digital Services Taxes Should Be Creditable, Reuven S. Avi-Yonah

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In a previous column, I argued that digital services taxes should be creditable as in-lieu-of taxes under section 903. A new analysis by Jane Gravelle sheds further light on this topic but does not change the outcome.

Gravelle makes three arguments against the creditability of DSTs. First, she argues that the whole concept underlying both pillar 1 and DSTs (allocating value to market jurisdictions) is wrong, and therefore they cannot be justified. Second, she argues that DSTs are passed on in full to consumers and that this precludes creditability. Finally, she argues that DSTs are discriminatory excise taxes on U.S. …

The Usefulness Of Pillar 1, Reuven S. Avi-Yonah

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Many commentators have declared that pillar 1 of the base erosion and profit-shifting project 2.0 is dead. By its explicit terms, the multilateral tax convention (MLC) implementing pillar 1 cannot go into effect this year without ratification by the United States, and the chances of the United States ratifying it before or after the election are low given massive opposition in Congress. If the MLC does not go into effect by December 31, 2024, over 30 countries will likely impose digital services taxes on January 1, 2025, making the whole pillar 1 project (which was aimed at preventing the spread …

Limitation On Benefits Or Principal Purpose Test? Part 2, Reuven S. Avi-Yonah

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Part 1 of this column discussed the choice between the limitation on benefits and principal purpose test (PPT) and the history of the LOB in U.S. tax treaty policy.

How effective is the LOB article in U.S. tax treaties, now that it no longer includes the PPT from the original U.S. LOB?

Limitation On Benefits Or Principal Purpose Test? Part 1, Reuven S. Avi-Yonah

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An interesting recent column by Tax Notes’ Lee Sheppard criticizes the principal purpose test (PPT) that was adopted as a minimum standard in the OECD’s base erosion and profit-shifting project 1.0 and has since been incorporated into many tax treaties through the multilateral instrument. Sheppard explains:

Readers will recall that BEPS 1.0 had a set of minimum standards for participating countries, one of which was a treaty amendment to cement the purpose of the treaty to prevent both double taxation and double nontaxation. Participants could choose between a seemingly simple, subjective principal purpose test (PPT) and a complicated but objective …

Crypto Losses, Xuan-Thao Nguyen, Jeffrey A. Maine

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The crypto industry has been hit hard with various market forces and scams, leaving investors with trillion-dollar losses in recent years. The appropriate tax treatment of such losses has yet to be fully examined, as there is scant guidance and a dearth of academic literature on the subject. This Article attempts to fill this gap by applying general tax principles to crypto losses and making several recommendations to improve the clarity and consistency of tax results. It explores various theories of crypto loss “realization” (including theft, abandonment, and worthlessness), highlighting where additional guidance is needed. And it considers appropriate legislative …

Has Cost Sharing Outlived Its Usefulness?, Reuven S. Avi-Yonah

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In her thoughtful column on cost sharing, Mindy Herzfeld explains the history of costsharing arrangements (CSAs) going all the way back to 1966, and then asks several questions, including: “Should the existing CSA regs be scrapped in favor of another regime, or simply eliminated as a choice for taxpayers?”

Pillar 2 And Specific Benefits For Multinationals, Reuven S. Avi-Yonah

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In a recent column, Tax Notes’ Martin Sullivan asked whether a country that wishes to neutralize the effect of pillar 2 on its investment incentives can get around the OECD prohibition on a multinational enterprise receiving what amounts to a refund of the pillar 2 tax it pays to that country. He writes that:

It would make a mockery of the pillar 2 taxation system if an investment hub imposed a 15 percent minimum tax on a company — thereby shielding profit in that hub from other jurisdictions’ pillar 2 tax — and then, through a separate mechanism, unconditionally returned …

Preventing Inversions, Reuven S. Avi-Yonah

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Inversions (transactions in which a U.S. parent corporation becomes a subsidiary of a foreign corporation, but the headquarters remain in the United States) were a major focus of tax policy before the Tax Cuts and Jobs Act.1 There have been no inversions since the TCJA, but that is more a result of the current rate structure. If the corporate tax rate is increased, inversions may come back, and the time to act to prevent that is now.

Should Large Corporate Mergers Be Subsidized?, Reuven S. Avi-Yonah

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On March 21 Sens. Sheldon Whitehouse, DR. I., and J.D. Vance, R-Ohio, introduced the Stop Subsidizing Giant Mergers Act. They explained that large mergers have been increasing in recent years and that since 2007, up to 40 percent by value of all mergers have been structured as tax free. They argue that the tax breaks to mergers are a “wasteful subsidy.”

Are Exit Taxes Discriminatory?, Reuven S. Avi-Yonah

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In a recent column, Tax Notes’ Robert Goulder analyzed case law in Europe on the constitutionality of exit taxes. Many EU member states impose exit taxes on individual residents who move to lower-tax jurisdictions, but the Court of Justice of the European Union has repeatedly struck them down as inconsistent with freedom of movement unless they allow for deferral until realization or death with no interest charge, which is equivalent to having no exit tax at all. Goulder cogently argues that this issue is similar to the Moore problem in the United States, especially since the U.S. exit tax on …

The Administrative Procedure Act Problem Reconsidered, Reuven S. Avi-Yonah

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Tax Notes contributing editor Ryan Finley’s excellent article on the 3M case1 and the Administrative Procedure Act provides an opportunity to reconsider the damage done to tax law by taxpayers constantly invoking the APA to invalidate regulations or IRS notices.

Digital Barter Taxes: A Legal Defense, Young Ran (Christine) Kim, Darien Shanske

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This short essay, aimed at state legislators, defends digital barter taxes from the most common legal objections.

Now You Have It, Now You Don’T: Taxing Crypto, Part 2, Reuven S. Avi-Yonah

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In “Coinbase: Are Cryptoassets Securities?” Tax Notes contributing editor Lee A. Sheppard highlights a recent district court decision indicating that some forms of cryptoassets are securities for securities law purposes and therefore fall under the jurisdiction of the SEC:

There are potential tax ramifications. Some, indeed many, cryptoassets could be securities under the securities law. That means that losses can’t be recognized on wash sales (section 1091). The IRS should issue a notice stating that many cryptoassets other than bitcoin are securities, so losses on wash sales can’t be recognized. A notice would not be a heavy lift. The taxpayers …

Digital Barter Taxes Are Good Tax Policy, Young Ran (Christine) Kim, Darien Shanske

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This short essay, aimed at state legislators, argues that digital barter taxes are good tax policy.

Now You Have It, Now You Don’T: Taxing Crypto, Part 1, Reuven S. Avi-Yonah

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The latest rise in the value of bitcoin has rekindled the debate on whether cryptocurrencies perform a useful function. For example, a recent article in the Financial Times argued: Have we learnt the lessons from the disastrous 2022 crash in digital assets? To judge from recent action in the crypto market, the answer appears to be no. Since hitting bottom after FTX collapsed into bankruptcy with a $9bn-ish hole in its balance sheet in November 2022, crypto market values have roughly tripled. Bitcoin’s price rose above $70,000 this week to touch record highs. A new wave of enthusiasm is growing, …