Taxation-Federal Commons^™

The Supreme Court Punts On The Realization Issue In Moore, Erik M. Jensen

Faculty Publications

The Supreme Court’s 2024 decision in Moore v. United States was a disappointment. The Court upheld the constitutionality of the so-called mandatory repatriation tax, a result that may or may not be defensible. But the Court didn’t resolve what was supposed to be the “question presented” in the case: “Whether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the states.” As a result, more than a century after ratification of the Sixteenth Amendment, we still don’t know whether realization of some sort is necessary to have income within the meaning of the Amendment. This article describes …

Is Realization Necessary To Have Taxable Income? The Supreme Court Might Tell Us, Erik M. Jensen

Faculty Publications

The Supreme Court granted certiorari in Moore v. United States to consider whether realization is a requirement to have income within the meaning of the Sixteenth Amendment. Both a district court and a panel of the Ninth Circuit had concluded that the Mandatory Repatriation Tax enacted in 2017 was valid even though a married couple was taxed on undistributed earnings of a controlled foreign corporation and the earnings may have been attributable to tax years going back as far as 1987. This article describes the basics of the controversy and considers some of the issues associated with the case, including …

What’S A Tax For Bankruptcy Law Purposes?, Erik M. Jensen

Faculty Publications

In 2012, the Supreme Court, in NFIB v. Sebelius, decided that the shared responsibility payment (SRP) required to be made under the Patient Protection and Affordable Care Act by many persons who didn’t acquire minimum essential health insurance was a tax authorized by the Taxing Clause of the Constitution, even though Congress had called the SRP a penalty. In recent years a similar issue has arisen in the bankruptcy context: Is the SRP a tax that may not be eligible for discharge in bankruptcy—it may, that is, be a “priority” under Bankruptcy Code Section 507(a)(8)—or is it a potentially …

Recent Developments Affecting The Salt Cap, Including And Appellate Court Decision Upholding The Cap's Constitutionality, Erik M. Jensen

Faculty Publications

The $10,000 annual limitation on the deduction of state and local taxes (the so-called SALT cap), which was included in the Tax Cuts and Jobs Act of 2017, has been the subject of much political and legal scrutiny. This article describes some of the recent debates, examines some state responses to the cap, and discusses litigation that culminated in a Second Circuit decision, New York v. Yellen, concluding that the cap meets constitutional requirements.

A Salt Cap Workaround That Works? Notice 2020-75, Erik M. Jensen

Faculty Publications

In November 2020, after the election was over, in form at least, the Treasury and the IRS issued Notice 2020-75, announcing that proposed regulations will be issued governing the treatment of new state laws that impose income taxes on what are passthrough entities for federal income tax purposes. Those laws are clearly intended to provide a way to circumvent the cap on the deductibility of state and local taxes (SALT) included in the Tax Cuts and Jobs Act of 2017, and the Notice is very taxpayer friendly in its understanding of these arrangements. This article considers the particulars and the …

Developments Affecting Intercollegiate Athletics And Taxation, Erik M. Jensen

Faculty Publications

Developments affecting whether some college athletic teams will be subject to the unrelated business income tax (UBIT) continue and may be accelerating. This article describes the relevant events over the past decade or so, and focuses on new rules generally permitting college athletes to benefit financially from marketing their names, images, and likenesses (NILs), and on the Supreme Court’s 2021 decision in National Collegiate Athletic Association v. Alston. Alston wasn’t a tax case, but what the Court said about the application of the Sherman Antitrust Act to the NCAA’s limitations on providing college athletes with education-related benefits seems to call …

When Can Taxpayers Invoke The Substance-Over-Form Doctrine?, Erik M. Jensen

Faculty Publications

This article considers the circumstances under which taxpayers can disavow the form of a transaction they enter in order to claim better tax consequences based on the substance of the transaction. In some situations, the disavowal is noncontroversial because the Internal Revenue Service has blessed the transactions. In a few situations where the Service resists, however, taxpayers are sometimes successful anyway. The focus of the article is on the Tax Court’s 2021 decision in Complex Media, Inc. v. Commissioner, and substantial discussion is devoted to the Third Circuit’s well-known, and sometimes controversial, 1967 decision in Commissioner v. Danielson.

News Flash: Pay Your Federal Income Taxes; The Sixteenth Amendment Was Properly Ratified, Erik M. Jensen

Faculty Publications

The idea got around years ago—and it’s still around in tax-protester circles—that the Sixteenth Amendment wasn’t properly ratified and therefore that no legal obligation exists to pay federal income taxes. Wrong! The Amendment process was sloppy, but nothing happened that calls the legitimacy of the Amendment into question, particularly since the relevant officials considered the ratification issues in 1913, when the Amendment was formally adopted.

Graduate Education And The Taxation Of Tuition Reductions, Erik M. Jensen

Faculty Publications

While the legislation popularly (or unpopularly) known as the Tax Cuts and Jobs Act of 2017 was working its way through Congress, many colleges and universities were afraid that the repeal of Internal Revenue Code section 117(d), as provided in the House version of the bill, would have catastrophic effects on American graduate education. The concern was that, after repeal, graduate teaching and research assistants would be taxed on their tuition reductions, and the measure of the income would be determined using the stated tuition figure—the sticker price—for the academic institution. Section 117(d) survived, but it could come under challenge …

Update On Section 1043: Deferral Of Gain On Sale Of Assets To Satisfy Conflict-Of-Interest Rules, Erik M. Jensen

Faculty Publications

An earlier article in the Journal of Taxation of Investments discussed the application of Section 1043, which generally permits eligible government officials to elect to defer gain on sales of appreciated assets made to comply with conflict-of-interest rules. This article updates that discussion, describing recent developments of interest.

The Origination Clause And The Validity Of Taxing Statutes, Erik M. Jensen

Faculty Publications

The Origination Clause of the Constitution provides that “[a]ll Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.” This article considers whether a taxpayer has any chance of success in challenging a tax statute on the grounds that its enactment violated that clause. Along the way, the article considers the history of the clause, the meanings of “bill for raising revenue” and “amendment,” and how, if at all, the clause can be enforced.

Four States Challenge The Cap On Salt Deductions, Erik M. Jensen

Faculty Publications

The attorneys general of New York, Connecticut, New Jersey, and Maryland have filed the complaint in New York v. Mnuchin, challenging the constitutionality of the $10,000 cap on the deduction for state and local taxes established by the Tax Cut and Jobs Act of 2017. This article considers the most important of the states’ claims and concludes that none of them is convincing.

If A Tuition Reduction Is Taxable, What’S The Measure Of Income?, Erik M. Jensen

Faculty Publications

This article considers what the measure of income should be if a tuition reduction is taxable, and it challenges the idea that an educational institution’s stated tuition figure should control in that determination. It’s the value of the reduction, not the dollar difference between sticker price and the tuition actually paid by a particular student, that is potentially income, and the article suggests one reasonable method that might be used to determine that value. Although the focus of the article is on tuition reductions, the argument applies just as well to other situations in which a price reduction (or what …

Is Capping The Deduction For State And Local Taxes Constitutional?, Erik M. Jensen

Faculty Publications

In the Tax Cuts and Jobs Act of 2017, Congress capped the deduction available for state taxes not attributable to businesses or investments, and representatives of high-tax states are challenging the constitutionality of that cap—which, they argue, was motivated by animus. This article considers several possible rationales for a challenge—intergovernmental tax immunity, political animus in general, the uniformity rule, and equal protection—and concludes that the case for overturning the cap on constitutional grounds is weak at best.

Are Recoveries For Losses Taxable? The Commissioner’S Nonacquiescence In Cosentino Muddies The Waters, Erik M. Jensen

Faculty Publications

After the recent presidential election, Section 1043 of the Internal Revenue Code has received both public visibility and substantial criticism. The section permits certain public officials to defer gain on the sale of assets required to satisfy conflict-of-interest rules, a benefit of sorts characterized by critics as an unwarranted giveaway to the wealthy. This article examines the particulars of Section 1043 and generally defends the way it works. The article also considers whether Section 1043 can be availed of by a President of the United States who divests appreciated assets because of conflict-of-interest concerns, concluding (perhaps surprisingly) that the statutory …

Sales Of Property To Comply With Conflict-Of-Interest Requirements: Section 1043 Assumes New Significance, Erik M. Jensen

Faculty Publications

After the recent presidential election, Section 1043 of the Internal Revenue Code has received both public visibility and substantial criticism. The section permits certain public officials to defer gain on the sale of assets required to satisfy conflict-of-interest rules, a benefit of sorts characterized by critics as an unwarranted giveaway to the wealthy. This article examines the particulars of Section 1043 and generally defends the way it works. The article also considers whether Section 1043 can be availed of by a President of the United States who divests appreciated assets because of conflict-of-interest concerns, concluding (perhaps surprisingly) that the statutory …

In Search Of Smarter Homeowner Subsidies, Matthew Rossman

Faculty Publications

Critics have long assailed the federal tax code’s principal homeowner subsidies as lucrative tax breaks for upper income households that are essentially worthless to those financially constrained from purchasing a home. This article examines the subsidies through a different lens and reveals another serious flaw. It demonstrates how the homeowner subsidies, which represent a massive federal investment in homeownership, do very little to contain and instead probably increase costs on others that result from certain types of housing choices and that other federal policies seek to remedy. These negative housing externalities include: (i) blight, deterioration, and public health risks in …

The Power To Tax, Erik M. Jensen

Faculty Publications

The Power to Tax, chapter 1 in The Powers of the U.S. Congress: Where Constitutional Authority Begins and Ends, Brien Hallett, editor: Copyright © 2016 by ABC-CLIO LLC

This is a chapter in a book intended largely for an undergraduate audience. The chapter outlines the key terms necessary for understanding the congressional power to tax under the U.S. Constitution; the history and development of our understanding of that power; and the limitations (or possible limitations) on the power.

Did The Sixteenth Amendment Ever Matter? Does It Matter Today?, Erik M. Jensen

Faculty Publications

This article, prepared for a symposium on the centennial of the ratification of the Sixteenth Amendment, argues that the Amendment was legally and politically necessary in 1913, if there was going to be a modern income tax, and that it remains significant today. The Amendment provides that “taxes on incomes” need not be apportioned among the states on the basis of population, as would otherwise be required for direct taxes. An apportioned income tax would be an absurdity, and, if there were no Amendment, Congress could not enact an unapportioned tax on income from property, the sort of tax that …

The Tiley Trilogy And U.S. Anti-Avoidance Law, Erik M. Jensen

Faculty Publications

This article examines an influential set of articles, written by Professor John Tiley in the late 1980s, about anti-avoidance doctrines developed by US courts. The trilogy of articles was written for a British audience, as part of Tiley’s efforts to resist importation of US doctrines (“bleeding chunks of alien doctrine,” as he put it) into the UK, but his ideas remain relevant to tax theorists in all countries, including the US. The article also examines the work of the Aaronson Committee, of which Tiley was a member, which successfully recommended in 2011 that the UK adopt a general anti-avoidance rule …

The Individual Mandate, Taxation, And The Constitution, Erik M. Jensen

Faculty Publications

This article examines the Supreme Court's 2012 decision in National Federation of Business v. Sibelius (NFIB). That case held that the individual mandate penalty in the Obamacare legislation will be a tax and not a penalty, and that the penalty will therefore be constitutional under the Taxing Clause of the Constitution, even though a majority of the Court held that the mandate itself-the requirement to acquire insurance or pay the tax/penalty-was not a valid exercise of the commerce power. The result in the case was not necessarily a surprise, but the reliance on the taxing power was. This article discusses …

The Sale Of Tax Credits Revisited: A Cca Consecrates (Most Of) Tempel,, Erik M. Jensen

Faculty Publications

In a 2011 decision, Tempel v. Commissioner, the Tax Court had held, among other things, that gain on sales of state income tax credits was capital gain. In a new Chief Counsel Advice, the IRS has accepted the result, and most of the analysis, of Tempel, and it has also provided guidance about the tax consequences to a purchaser of credits. This article analyzes the CCA, discusses the remaining disagreements between t e Service and the Tempel court, stresses that the CCA's conclusions are explicitly limited to nonrefundable credits, and considers the results to a purchaser.

The Individual Mandate And The Taxing Power, Erik M. Jensen

Faculty Publications

This article, prepared for a symposium at the Salmon P. Chase College of Law, Northern Kentucky University, considers whether the Taxing Clause provides an alternative constitutional basis, as some have recently argued, for the individual mandate in the Patient Protection and Affordable Care Act of 21 - the requirement, going into effect in 214, that most individuals acquire satisfactory health insurance or pay a penalty. The article concludes that the Taxing Clause arguments are misguided. At best, the Clause can provide authority for the penalty, not for the mandate as a whole. Furthermore, the article questions whether the penalty will …

Quirky Constitutional Provisions Matter: The Tonnage Clause, Polar Tankers, And State Taxation Of Commerce, Erik M. Jensen

Faculty Publications

In Polar Tankers, Inc. v. City of Valdez, the Supreme Court in 29 struck down a City of Valdez levy that was in form a personal-property tax, but that primarily reached oil tankers using Valdez’s ports, on the ground that the levy violated the Tonnage Clause of the Constitution (“No State, shall, without the consent of Congress, lay any Duty of Tonnage”). The Tonnage Clause, part of the constitutional structure intended to ensure federal primacy in regulating commerce, was once a staple of litigation, but Polar Tankers was the first Supreme Court case decided under the Clause since 1935. Polar …

A Tax Or Not A Tax: That Is The Question, Erik M. Jensen

Faculty Publications

This piece is part of the author’s probably misguided effort to take seriously the Sixteenth Amendment phrase “taxes on incomes.” The piece (in form a letter to the editor, but complete with footnotes!) responds to a reader who had noted that, because of a cap, the basic Social Security “tax” does not reach higher levels of income. Because the author had earlier argued that a tax “on” incomes should result in higher tax liability for higher-income persons, it might seem that the Social Security levy is unconstitutional (or the author just wrong). This piece makes several points: (1) The Social …

Murphy V. Internal Revenue Service, The Meaning Of 'Income,' And Sky-Is-Falling Tax Commentary, Erik M. Jensen

Faculty Publications

This article examines the widely noted D.C. Circuit case, Murphy v. Internal Revenue Service, where a panel twice got itself hopelessly entangled in the relationship between the meaning of “income” in the Internal Revenue Code and its meaning in the Sixteenth Amendment. At issue was whether a whistle-blower's recovery for emotional distress could be reached by the income tax. The first time around, the panel concluded that the recovery could not be taxed constitutionally because it was not income. The second time, apparently after having visited another planet, the very same panel concluded that the recovery could be taxed whether …

News Flash: The Income Tax Remains Constitutional, Erik M. Jensen

Faculty Publications

No abstract provided.