Tax Law Commons^™

The Politics And Psychology Of Gasoline Taxes: An Empirical Study, Shi-Ling Hsu

Scholarly Publications

Economists are beginning to form a consensus that a carbon tax is the most effective and cost-effective way to reduce global greenhouse gas emissions. The insight of economists and other policy analysts is that, in the greenhouse gas context, the design of cap-and-trade programs creates so many opportunities for rent-seeking that they may not be very cost-effective, and may not reduce greenhouse gas emissions at all. Carbon tax proposals are appealing because they are so simple and sensible that rent-seeking would have to be very audacious to succeed.

Carbon tax proposals, however, have divided economists from almost everybody else. In …

Living By The Initiative And Dying By The Initiative, Steve R. Johnson

Scholarly Publications

A significant fiscal development in recent decades in many states has been revision of tax laws and policy not by legislatures but by voters through the initiative process. Initiatives often have been used to restrain the growth of taxes and spending, and to that extent the owners of wealth, property, and income have benefitted from initiatives. Among the many examples of controversial and important state tax and spending initiatives, one may think of the Taxpayer Bill of Rights in Colorado, the supermajority requirement for tax increases in Nevada, and of course Proposition 13 in California.

However, that gate swings both …

The 'Absurd Results' Doctrine In State And Local Cases, Steve R. Johnson

Scholarly Publications

A statute will not be applied according to the literal meaning of its words if to do so would produce absurd results. Cases considering this principle have never been in short supply, but the rule has appeared in a striking number of cases in recent months. Accordingly, it is timely to explore this doctrine in this installment of Interpretation Matters.

The first part describes the doctrine generally. The second part identifies a critical question – and point of dispute – about the doctrine: What results can be considered to be absurd enough for the doctrine to apply? The third part …

The Sixth Amendment And Expert Witnesses In Criminal Tax Cases, Steve R. Johnson

Scholarly Publications

Recently, in the Baxter case, a federal district court vacated the sentence imposed as a result of a guilty plea in a criminal tax case. The court held that the failure of defense counsel to retain the services of an expert in tax crimes sentencing violated the defendant’s Sixth Amendment right to effective representation.

This installment of the Tax Crimes column explores Baxter. Part A briefly notes the civil and criminal tax contexts in which tax experts are used. Part B describes Baxter and its holding. Part C asks whether defense counsel in criminal tax cases should always retain a …

Easterday And The Erosion Of The Financial Inability Defense, Steve R. Johnson

Scholarly Publications

Several tax crimes in the code involve failure to pay known or assessed tax liabilities. For generations, there has been controversy over whether a taxpayer’s lack of funds from which to make payment should preclude conviction for those crimes. The potency of the financial inability defense1 has waned over the years. The recent decision of a divided Ninth Circuit panel in Easterday continues that trend, but the defense should still have life in some situations and some courts.

Part I of this report describes the tax crimes to which a financial inability defense may be relevant. Part II discusses Easterday. …

Legislative Rhetoric, Or How To Oppose Anything, Steve R. Johnson

Scholarly Publications

This installment of the column involves a change of focus. Instead of looking at the end of the legislative process – how courts interpret enacted statutes – this installment looks at the phase at which bills are enacted by or defeated in the legislature. However, the two phases have underlying similarities. As we will see, arguments used in legislative advocacy have counterparts in statutory interpretation advocacy. Our topic is particularly timely. Proposals to revise state and local tax statutes are always with us, of course, but recent budgetary stresses have increased both the number and significance of those proposals.

This …

Substantial Compliance, Steve R. Johnson

Scholarly Publications

There are many exceptions to the juvenile saw that “close counts only in horseshoes and hand grenades.” State and local tax practice may be among those exceptions – depending on possible application of the doctrine of substantial compliance. The tax law often makes the legal validity of one action contingent on a party having taken preliminary steps. Strict compliance – having to take those steps in precisely the right way at precisely the right time – is not always necessary. Courts sometimes hold that substantial compliance – “close enough” - suffices.

This installment of Interpretation Matters discusses the substantial compliance …

Equitable Tolling In State And Local Tax Cases, Steve R. Johnson

Scholarly Publications

Tax statutes, like statutes of all kinds, frequently prescribe dates or times by which actions are to be taken. If the actor – either the taxpayer or the state or local revenue authority – fails to act by the specified date or time, the actor sometimes can be rescued by any of several legal and equitable mechanisms.

This installment of Interpretation Matters addresses one of those mechanisms: the doctrine of equitable tolling. Part I below describes the doctrine generally and gives examples of successful use of the doctrine by taxpayers and by revenue authorities. Part II identifies possible barriers to …

Supertext And Consistent Meaning, Steve R. Johnson

Scholarly Publications

Opponents of textualism as an approach to statutory interpretation sometimes deride it as myopic. The textualist, those opponents contend, puts on blinders, narrowing the perhaps vast panorama of possible perspectives on meaning to a narrow slice of the whole. Modern textualists beg to differ. They view that criticism as reductionist and are often quick to distinguish textualism from mere literalism. Thus, the leading contemporary textualist jurist – U.S. Supreme Court Justice Antonin Scalia – cautions:

Textualism should not be confused with so-called strict constructionism, a degraded form of textualism that brings the whole philosophy into disrepute .... [T]he good textualist …

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The Two Kinds Of Legislative Intent, Steve R. Johnson

Scholarly Publications

What is a court trying to do when it interprets or applies a statute? This installment of my column looks at two different answers to that question, doing so through the lens of cases involving state and local tax statutes. Both approaches sometimes use the language of “intent,” so it becomes important for the state-local tax practitioner to understand, and to accommodate his or her arguments to the kind of intent that actually controls in the particular jurisdiction.

The first part describes the two approaches: subjective intent and objectified intent. The second part describes a middle position that some courts …

Interpreting State Tax Exemptions, Deductions, And Credits, Steve R. Johnson

Scholarly Publications

Modern tax statutes serve many purposes beyond simply raising revenue, and the contours of those statutes are shaped by many (and sometimes conflicting) economic, social, and political objectives. Legislatures choose a variety of structural mechanisms – including exemptions, deductions, and credits – to advance those policy goals. Sometimes those features are drafted with less than meticulous precision. Other times, business practices have evolved since enactment of the provisions. In either event, revenue agencies and courts are frequently required to interpret those provisions.

This installment of “Interpretation Matters” concerns one such principle of interpretation: The canon that exemptions, deductions, and credits …

Pro-Taxpayer Interpretation Of State-Local Laws, Steve R. Johnson

Scholarly Publications

Sometimes, from a taxpayer’s perspective, it is better to be challenging a state or local tax determination than a federal tax determination. One reason for that is the canon that “[tax] statutes are to be construed most favorably for the taxpayer.” Scores, if not hundreds, of federal tax cases espoused that principle, especially during the 1890s to 1940s. However, the principle fell into disuse at the federal level in ensuing decades and, indeed, was replaced by prorevenue canons. A seeming attempt to revivify the canon at the federal level earlier this decade appears to have withered on the vine. In …

Hedging The Irs -- A Policy Justification For Excluding Liability And Insurance Proceeds, Jeffrey H. Kahn

Scholarly Publications

Uncertainty about tax results is an ever-present obstacle to business transactions despite the extensive number of Internal Revenue Code sections and Treasury Regulations. Some insurance companies now provide an insurance product to protect taxpayers against adverse tax consequences from proposed transactions. Ironically, this new insurance product, labeled “tax insurance,” poses uncertain tax consequences itself This Article argues that if the adverse tax consequences arise (that is, the taxpayer has additional tax liability) and the insurance company is contractually required to cover that liability, the tax insurance proceeds are not includable in the insured’s gross income. As part of the reasoning …

The Work Product Doctrine And Tax Accrual Workpapers, Steve R. Johnson

Scholarly Publications

In its rehearing of Textron, the First Circuit has an opportunity to rectify an error and curb unwise recent expansion of work product protection for tax accrual workpapers. In August 2007, a district court denied the government’s petition for enforcement of an IRS summons on Textron Inc. and its subsidiaries for tax accrual workpapers in connection with IRS examinations of the taxpayers’ 1998 to 2001 income tax returns. A divided panel of the First Circuit affirmed in January 2009. In March 2009, the First Circuit withdrew the panel opinion and dissent, and it set the case for en banc hearing …

The Reenactment And Inaction Doctrines In State Tax Litigation, Steve R. Johnson

Scholarly Publications

This installment of Interpretation Matters discusses two related canons of statutory interpretation and illustrates their use in state and local tax controversies. Assume that a state revenue agency or court construes a tax statute and that the construction is later challenged in another case. Between the two cases, the state legislature reenacts the provision without changing it or the legislature takes no action to amend the provision to overturn the construction in the first case. Some courts treat the reenactment without change, or even the inaction, as evidence that the legislature agreed with the construction in the first case, so …

Substance And Form In State Taxation, Steve R. Johnson

Scholarly Publications

In the interpretation of tax statutes, a venerable principle is that “taxation should move in an atmosphere of practical realities rather than amid the intricate and wooden concepts” of legal formalities. That principle is familiar in federal taxation, and it holds no less sway in state and local taxation. Indeed, the idea that the substance of a transaction usually controls over the form of the transaction is not confined to taxation; it is a principle of U.S. law generally.

The principle commands that the underlying reality of the events usually determines tax consequence; the forms or labels attached to the …

Will The Tax Man Cometh To Coach Rodriguez?, Jeffrey H. Kahn, Douglas A. Kahn

Scholarly Publications

No abstract provided.

Give The Tax Court Transfer Power And Plenary Civil Tax Jurisdiction, Steve R. Johnson

Scholarly Publications

A recent decision again raises questions about the powers that the Tax Court does and should possess. In Mobley v. Commissioner, No. 07-2019 (6th Cir. July 8, 2008), Doc 2008-14970, 2008 TNT 132-13, the Sixth Circuit affirmed a procedural decision of the Tax Court. The Tax Court dismissed a petition because it lacked jurisdiction, and it rejected the taxpayers’ request to transfer the case to a district court. The Tax Court concluded, and the Sixth Circuit agreed, that the Tax Court lacks transfer power. Under 28 U.S.C sections 1631 and 610, the power to transfer cases is conferred only upon …

All In The Family As Single Shareholder Of An S Corporation, Jeffrey H. Kahn, Douglas H. Kahn, Terrence G. Perris

Scholarly Publications

No abstract provided.

Tax Magic: Did Billy Donovan Pull Income Out Of A Hat?, Jeffrey H. Kahn, Joshua P. Fershee

Scholarly Publications

No abstract provided.

Tax Consequences When A New Employer Bears The Cost Of The Employee's Terminating A Prior Relationship, Jeffrey H. Kahn, Douglas A. Kahn

Scholarly Publications

No abstract provided.

Swallows As It Might Have Been: Regulations Revising Case Law, Steve R. Johnson

Scholarly Publications

This is the second of two reports on the Swallozvs Holding decision. 1 In that case, the Tax Court, over three dissenting opinions, invalidated a timing rule contained in a Treasury regulation under IRC section 882. That timing rule provided that some foreign corporations could not claim otherwise available deductions if their returns for the tax year were filed outside an 18-month grace period. The majority and the dissenters clashed over which line of authority – Chevron 2 or the pre-Chevron tax-specific line of decisions typified by National Muffier3 – provides the governing standard for evaluating the validity of …

Swallows Holding As It Is: The Distortion Of National Muffler, Steve R. Johnson

Scholarly Publications

I like big ideas. The opportunity to work with them, and hopefully to add to them, is one of the joys of academic life. But perspective also is required. Not everything genuinely presents "macro" issues. As Freud supposedly said, “Sometimes a cigar is just a cigar.”

In Swallows Holding Ltd. v. Commissioner, the Tax Court, over three dissenting opinions, invalidated a return-filing timing rule in a Treasury regulation under section 882 of the !RC. It is clear that what drove the majority opinion was the perception that the timing rule was contrary to many previous cases interpreting the statute. As …

Using State Fraudulent Conveyance Law To Collect Federal Taxes, Steve R. Johnson

Scholarly Publications

The I.R.S. has an imposing armamentarium of means by which to collect unpaid taxes. They include the general tax lien, various special tax liens, administrative levy and sale, and judicial sale. There are many administrative and judicial protections for taxpayers and third parties against the overly zealous application of these and other devices. Nonetheless, the I.R.S.’s collection options are of imposing breadth and power, considerably exceeding collection options available to private creditors.

Confronted by these collection devices, those who owe taxes and are determined not to pay them sometimes resort to transferring their assets to others, typically family members, close …

Prevention Of Double Deductions Of A Single Loss: Solutions In Search Of A Problem, Jeffrey H. Kahn, Douglas A. Kahn

Scholarly Publications

No abstract provided.

Beyond The Little Dutch Boy: An Argument For Structural Change In Tax Deduction Classification, Jeffrey H. Kahn

Scholarly Publications

One of the most active disputes in tax law today is the question of the proper tax consequences for a successful plaintiff, a portion of whose taxable damage award is paid to his or her attorney pursuant to a contingent fee arrangement. At issue is whether the plaintiff is taxable on the portion of the award that is payable to the attorney. One aspect of this problem was resolved prospectively by the adoption of the American Jobs Creation Act of 2004, but the problem continues to exist in other areas. The United States Supreme Court resolved a split in the …

Further Thoughts On Kanter And Ballard, Steve R. Johnson

Scholarly Publications

On December 7, 2004, the Supreme Court will hear oral arguments in the consolidated Kanter and Ballard cases. The Tax Court had substantially upheld the IRS’s determinations of large deficiencies and fraud penalties against several taxpayers. The taxpayers argued in part that the Tax Court's application of its Rule 183 violated both due process and applicable statutes. I disagreed with those arguments then, and I continue to do so now. On appeal, the taxpayers' challenges to Rule 183 were rejected by the Fifth, Seventh, and Eleventh Circuits. The decisions of those circuits are sound and should be affirmed.

Both an …

Administrability-Based Tax Simplification, Steve R. Johnson

Scholarly Publications

The Boyd School of Law is a vibrant place, and our trajectory continues to move strongly in the right direction. One of the things that has been so important to us is the excellent support we have received from so many in and around Nevada. An example of that support brings us together tonight. The Wiegand Foundation has endowed a professorship at the Law School to support the study of tax law. I am fortunate to be the current holder of that professorship. This address is the first formal event memorializing the Wiegand Foundation’s support for scholarship and for Law …

The Doctrine Of Judicial Estoppel, Steve R. Johnson

Scholarly Publications

The doctrine of judicial estoppel is not on some lawyers’ radar screens. That’s regrettable. Not anticipating application of the rule, a person may make a claim that can hurt him or her in the long run. Or, unaware of the rule, a party may fail to assert a potentially successful defense. Or, having only a very general awareness of the rule, an attorney may miss subtleties or forum variations that are the difference between winning and losing.

This article has three parts. Part I describes the doctrine of judicial estoppel, emphasizing its purposes. Part II explores the recent judicial estoppel …

The 1998 Act And The Resources Link Between Tax Compliance And Tax Simplification, Steve R. Johnson

Scholarly Publications

Tax compliance sometimes is thought of as purely a matter of administration. But there are important connections between substance and procedure.' Both affect compliance. This article explores how simplification of the substantive tax law can improve compliance. The particular emphasis is on how simplification can liberate human and material resources for the IRS without which otherwise well conceived efforts to improve compliance are likely ultimately to fail.