Taxation-Federal Commons^™

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.” …

Transitioning From Gilti To Fdii? Foreign Branch Income Issues, Jeffery M. Kadet, David L. Koontz

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In this article, Kadet and Koontz explain the risks and benefits multinationals must consider in deciding whether to transition some operations conducted within a controlled foreign corporation (along with the associated income) into a domestic group member to achieve a structure that qualifies for foreign-derived intangible income.

Letter From Jeffery M. Kadet To Internal Revenue Serv. (Oct. 6, 2019) On Notice 2019-30, 2019-2020 Priority Guidance Plan - Sourcing Of Cloud Services Income, Jeffery M. Kadet

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No abstract provided.

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 …

The Impact Of Law On The State Pension Crisis, Elizabeth S. Goldman, Stewart E. Sterk

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While some state and municipal pension plans have funds sufficient to meet obligations to retirees without imposing onerous obligations on current and future taxpayers, underfunding of plans in other states has reached disastrous proportions, raising the possibility of default on pension obligations, cuts in public services, steep tax increases, or some combination of the three. The substantial differential in pension funding might be attributed to divergent political pressures, different responses to uncertainty about investment returns, or other factors. Our examination of pension funding law in ten states-five with the best-funded plans and five with the worst-funded plans-highlights the role of …

The Beat And Treaty Overrides: A Brief Response To Rosenbloom And Shaheen, Reuven S. Avi-Yonah, Bret Wells

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In a recent article in Tax Notes International, H. David Rosenbloom and Fadi Shaheen argue that the base erosion and antiabuse tax (IRC section 59A, as enacted in 2017) is a potential violation of articles 23 and 24 of U.S. tax treaties. They say the BEAT does not override those treaties, so those agreements can be relied on to overcome the effects of the BEAT. In our opinion, that conclusion is wrong for two reasons: The BEAT is not a treaty violation, and even if were, it is a treaty override.

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

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No abstract provided.

Beps, Atap, And The New Tax Dialogue: "A Transatlantic Competition?", Reuven Avi-Yonah, Gianluca Mazzoni

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Since its launch in 2013, the US actively participated in all aspects of the BEPS project. However, until recently, the general view was that following the conclusion of the BEPS negotiations and the change of Administration the US is stepping back from the BEPS process. While the EU was charging ahead with implementing BEPS through the Anti-Tax Avoidance Directive (ATAD), the US stated that it was already in compliance with all BEPS minimum standards and therefore other than Country-by-Country Reporting (CbCR) it had no further BEPS obligations. The US decided not to sign the Multilateral Instrument (MLI) to implement BEPS …

Maintaining Condominiums And Homeowner Associations: How Much Of A Priority?, Stewart E. Sterk

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During the recent real estate crisis, competition for scarce dollars pitted the holders of defaulted mortgages against condominiums and homeowner associations seeking to collect maintenance assessments. Statutes providing mortgagees with lien priority threatened association ability to provide services, and imposed a disproportionate burden on non-defaulting unit owners. Statutes enacted in other states gave associations a “super priority” lien for six months of assessments, but left uncertainty about the meaning of that super priority in an environment in which foreclosure delays became the norm.

The last five years have brought a spate of litigation over the relative rights of associations and …

Does The United States Still Care About Complying With Its Wto Obligations?, Reuven S. Avi-Yonah

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The Tax Cuts and Jobs Act of 2017 (“TCJA”) contains a provision that on its face appears to be a blatant violation of the WTO’s Subsidies and Countervailing Measures (SCM) rules. New IRC section 250 applies a reduced 13.125% tax rate to “foreign derived intangible income” (FDII), which is defined as income derived in connection with (1) property that is sold by the taxpayer to any foreign person for a foreign use or (2) services to any foreign person or with respect to foreign property. In other words, this category comprises exports for property and services, including royalties from the …

Effects Of The New Sourcing Rule: Eci And Profit Sharing, David L. Koontz, Jeffery M. Kadet

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For the first time in eons, Congress has seen fit to change a basic rule for the sourcing of income. The Tax Cuts and Jobs Act (P.L. 115-97) minced few words in its addition of a single sentence to section 863(b) that applies to sales or exchanges of inventory property (1) produced in whole or in part by the taxpayer in one country, and (2) sold or exchanged in another country. The United States can either be the country where the inventory property is produced or the country where it is sold.

With this change, income from the sale of …

Letter From Jeffery M. Kadet And David L. Koontz To The Internal Revenue Serv. (June 5, 2018) On Notice 2018-43, 2018-2019 Priority Guidance Plan Regulatory And Ruling Guidance Concerning Various International Tax Issues, Jeffery M. Kadet, David L. Koontz

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A principal focus of our suggestions is the modernization and updating of regulations as well as providing guidance that will affect the many multinational corporations (MNCs) whose operations take place partially or wholly within the U.S. Many of these MNCs have embarked on complicated and legalistic schemes whose primary purpose is to shift profits without any real operational changes and to record those profits within zero- and low-taxed foreign members. Importantly, this includes not only U.S.-based MNCs, but also the many inverted MNCs that structured their inversions to remain untouched by the §7874 anti-inversion rules.

Sourcing Rule Change: Manufacturing And Competitiveness, Jeffery M. Kadet

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In this article, Kadet explains how the Tax Cuts and Jobs Act favors foreign-based manufacturers selling through a U.S. sales branch over comparable U.S. manufacturers, and he recommends legislative fixes.

The Federal Law Of Property: The Case Of Inheritance Disclaimers And Tenancy By The Entireties, David G. Carlson

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The Supreme Court has issued two disturbing tax opinions which disrupt the notion that “property” (when used in federal statutes) refers to state-law notions. In Drye v. United States, the Supreme Court pierced the Arkansas fiction that inheritance disclaimers are retrospective in effect. Thus the Internal Revenue could claim that a tax lien attached to the pre-disclaimer inheritance. Disclaimer could not defeat this lien. In United States v. Craft, the Supreme Court pierced the Michigan fiction that a tenancy by the entireties does not belong to the individual spouses but, rather, the a corporate “marital” entity that is a separate …

Guilty As Charged: Reflections On Tra 17, Reuven S. Avi-Yonah

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The international provisions of TRA 17S are in some ways an improvement over TRA 17H, but they are nevertheless deeply flawed. U.S.-based MNEs have accumulated $ 2.6 trillion of low taxed income offshore. This "guilty" income derives not just from IP developed in the United States, but in many cases (for example, Google, Facebook, and Big Pharma) also from exploiting the U.S. consumer market. This is a classic "round tripping" situation in which both the supply side (production) and the demand side (consumption) are in the United States, and yet both TRA 17H and TRA 17S let the guilty parties …

Once More, With Feeling: Tra 17 And Original Intent Of Subpart F, Reuven S. Avi-Yonah, Nir Fishbien

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For the first time since 1913, Congress is considering abandoning the principle that U.S. residents should be subject to tax on all income “from whatever source derived.” Specifically, the proposed tax reform legislation, the Tax Cuts and Jobs Act, would completely exempt from U.S. taxation dividends from controlled foreign corporations. This is therefore a good occasion for considering the reasons we tax those dividends in the first place.

Churches' Lobbying And Campaigning: A Proposed Statutory Safe Harbor For Internal Church Communications, Edward A. Zelinsky

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President Trump, reiterating the position he took during the presidential campaign, has recently reaffirmed his pledge to “get rid of and totally destroy the Johnson Amendment,” the provision of the Internal Revenue Code which prohibits tax-exempt institutions from participating in political campaigns. The Code also bars tax-exempt institutions, including churches, from substantial lobbying activities.

Rather than the blanket repeal of the Johnson Amendment proposed by President Trump, I argue for a statutory safe harbor for the internal communications of churches. This limited safe harbor would protect in-house church discussions from both Section 501(c)(3)’s ban on substantial lobbying and from that …

The Fallacious Objections To The Tax Treatment Of Carried Interest, Douglas A. Kahn, Jeffrey H. Kahn

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“The tax treatment of carried interest has become a notorious bete noire for many politicians and some academicians and practitioners. Both 2016 presidential candidates denounced the current tax treatment and vowed to change it. President Obama described the current treatment as a "tax loophole" which should be closed. Others have also characterized the current tax treatment as an abusive loophole.' It is the thesis of this article that those criticisms are unfounded. To the contrary, the current tax treatment accords with sound tax policy and is proper and appropriate. Given the broad approval that attended the attacks on carried interest, …

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 …

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 …

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 …

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) …

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 …

Not Too Separate Or Unequal: Marriage Penalty Relief After Obergefell, Mitchell L. Engler, Edward D. Stein

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Joint tax returns have generated controversy for many years. Married couples with the same joint income pay the same tax under our current system regardless of the earnings distribution between the spouses. This approach primarily rests on the idea that married couples share resources and operate as a single economic unit. Critics typically challenge this assumption and lament how marriage might significantly change a couple's taxes. Depending on their earnings breakdown, a couple's taxes could be reduced (a marital bonus for uneven-earners) or increased (a marital penalty for even-earners). These possibilities exist because the joint brackets are typically larger-but not …

Full Circle? The Single Tax Principle, Beps, And The New Us Model, Reuven S. Avi-Yonah

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This paper will argue that while there is some innovation in BEPS, it is in fact more of a continuation that a sharp break with the past. Like Alexis de Tocqueville’s French Revolution, BEPS represents both continuity and change. In particular, the single tax principle has formed the theoretical basis of much of the international tax regime from the beginning. And it is in fact this continuity rather than any sharp change that gives the final BEPS package its promise to, as Secretary General Gurria also promised, “put an end to double non-taxation.”

Provisions Denying A Deduction For Illegal Expenses And Expenses Of An Illegal Business Should Be Repealed, Douglas A. Kahn, Howard Bromberg

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Currently, the tax law denies a deduction for business expenses that violate a federal or state law (but only if the state law is generally enforced). In addition, losses, including business losses, cannot be deducted if they arise out of an illegal activity. For example, medical expenses are denied a deduction if they are illegal. Kickbacks, bribes, and rebates given in connection with the Medicaid or Medicare program are nondeductible. Any expenses, legal or not, incurred in connection with the conduct of a business of selling a controlled substance that is prohibited by federal law (or by the law of …

A Bipartisan Tax Reform?, Reuven S. Avi-Yonah

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A Bipartisan Tax Reform?By Reuven S. Avi-YonahIf one listens to what Democratic and Republicancandidates for president are saying on the cam-paign trail, it would appear that the chances for taxreform in 2017 and beyond are minimal. A biparti-san approach is essential for tax reform to passbecause even if there are majorities from the presi-dent’s party in both houses, major tax reform wouldnot likely get through the Senate without 60 votes.But the parties seem very far apart on tax reform.Democrats are focused on using the tax system toreduce inequality and are determined to raise thetax rates at the top of the …

Back To 1913?: The Ryan Blueprint And Its Problems, Reuven S. Avi-Yonah

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From the Revolutionary War to the late 19th century, the federal government was financed primarily through regressive tariffs on imported goods. The exception was the income tax enacted during the national emergency of the Civil War, which was allowed to expire in 1872. The rise of an industrial economy in the post- Civil War era led to significant increases in inequality, which the tariffs exacerbated by falling primarily on the working class. ‘‘Robber barons’’ like J.P. Morgan, Andrew Carnegie, and John D. Rockefeller did not consume most of their income, and their intangible wealth avoided state-level personal property taxes as …

Clean Energy Federalism, Felix Mormann

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Legal scholarship tends to approach the law and policy of clean energy from an environmental law perspective. As hydraulic fracturing, renewable energy integration, nuclear reactor (re)licensing, transport biofuel mandates, and other energy issues have pushed to the forefront of the environmental law debate, clean energy law has begun to emancipate itself. The emerging literature on clean energy federalism is a symptom of this emancipation. This Article adds to that literature by offering two case studies, a novel model for policy integration, and theoretical insights to elucidate the relationship between environmental federalism and clean energy federalism.

Renewable portfolio standards and feed-in …

Dodging The Taxman: Why The Treasury’S Anti-Abuse Regulation Is Unconstitutional, Linda D. Jellum

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To combat abusive tax shelters, the Department of the Treasury promulgated a general anti-abuse regulation applicable to all of subchapter K of the Internal Revenue Code of 1986. The Treasury targeted subchapter K because unique aspects of the partnership tax laws—including its aggregate-entity dichotomy—foster creative tax manipulation. In the anti-abuse regulation, the Treasury attempted to “codify” existing judicially- created anti-abuse doctrines, such as the business-purpose and economic-substance doctrines. Also, and more surprisingly, the Treasury directed those applying subchapter K to use a purposivist approach to interpretation and to reject textualism. In this article, I demonstrate that the Treasury exceeded both …