Taxation-Federal Commons^™

Location, Location, Location: Using Cost Of Living To Achieve Tax Equity, James M. Puckett

Faculty Scholarship

All other things being equal, the federal income tax ignores whether the taxpayer lives in a relatively affordable or expensive location. This approach can lead to unfairness; moreover, special deductions for the taxpayer’s actual living expenses, such as home mortgage interest and state and local taxes, do not solve the problem. Tax law scholars have generally been quick to dismiss the equity issues based on assumptions about taxpayer mobility. The existing literature would tax comparable workers equally, regardless of salary and living costs. This approach would unfairly equate differently situated workers. This Article questions the assumption of taxpayer mobility, considers …

“Early-Bird Special” Indeed!: Why The Tax Anti-Injunction Act Permits The Present Challenges To The Minimum Coverage Provision, Michael C. Dorf, Neil S. Siegel

Faculty Scholarship

In view of the billions of dollars and enormous effort that might otherwise be wasted, the public interest will be best served if the Supreme Court of the United States decides the present challenges to the Patient Protection and Affordable Care Act (ACA) during its October 2011 Term. Potentially standing in the way, however, is the federal Tax Anti-Injunction Act (TAIA), which bars any “suit for the purpose of restraining the assessment or collection of any tax.” The dispute to date has turned on the fraught and complex question of whether the ACA’s exaction for being uninsured qualifies as a …

Fiscal Policy In An Era Of Austerity, David M. Schizer

Faculty Scholarship

We face a time of stagnant economic growth, severe unemployment, massive budget deficits, and an increasingly competitive global economy. These daunting challenges are the legacy of a number of unwise policy decisions in both the public and private sectors. Although the good news is that unsound policies can be changed, the bad news is that no single step will do the trick. It is a challenge to rely on monetary policy when interest rates are near zero. There also is uncertainty – and a heated debate among economists – about the effectiveness of a Keynesian stimulus. One thing we know …

Who Wins When Uncle Sam Loses? Social Insurance And The Forgiveness Of Tax Debts, Shu-Yi Oei

Faculty Scholarship

Small-scale tax collections decisions have large-scale distributive consequences. The central question addressed in this Article is whether a deliberate government decision to forgive or to not collect a tax owed can be justified, given the distributive consequences that may result. In brief, the government’s decision not to pursue full collection of a delinquent tax debt may give rise to two types of distributive outcomes: First, the benefits of non-collection may be captured by the forgiven taxpayer’s other creditors. Second, the costs of non-collection may be imposed upon compliant taxpayers and the public through higher taxes, decreased government provision of goods, …

Technology Solves Mtic - Vln, Rtvat, D-Vat Certification, Richard Thompson Ainsworth

Faculty Scholarship

Technology solves missing trader intra-community (MTIC) fraud. This should come as no surprise. MTIC is technology-intensive fraud – its solution should also be technology-intensive.

MTIC is getting to be an out-dated term. Now that missing trader fraud has move into services it is no longer confined to intra-community trade, and the older acronym should be adjusted to MTIC/MTEC fraud (with MTEC standing for missing trader extra-community).

MTIC/MTEC fraud is fully digitized (the supply, the movement of the supply, and the funding). The consequences should be clear. MTIC/MTEC must be prevented (before the fact), not pursued (after the fact). In the …

Will Cutting The Payroll Tax Increase Jobs In The U.S.? Empirical Evidence From The Eu Vat, Richard Thompson Ainsworth

Faculty Scholarship

Red Ink Rising, the Peterson–Pew Commission on Budget Reform’s report presents the country with a fiscal/employment dilemma – Congress must act immediately to stem the federal debt, but it must move carefully lest it harm employment in the fragile economy. In short, we must act fast and slow – we must decrease the debt and increase employment. This is a difficult task.

The Peterson-Pew dilemma (notably its jobs-creation aspect) was taken to heart by both of the reform commissions that issued reports soon thereafter (National Commission on Fiscal Responsibility and Reform, The Moment of Truth and The Debt Reduction Task …

Income Tax Discrimination: Still Stuck In The Labyrinth Of Impossibility, Michael J. Graetz, Alvin C. Warren Jr.

Faculty Scholarship

In previous articles, we have argued that the European Court of Justice's reliance on nondiscrimination as the basis for its decisions did not (and could not) satisfy commonly accepted tax policy norms, such as fairness, administrability, economic efficiency, production of desired levels of revenues, avoidance of double taxation, fiscal policy goals, inter-nation equity, and so on. In addition, we argued that the court cannot achieve consistent and coherent results by requiring nondiscrimination in both origin and destination countries for transactions involving the tax systems of more than one member state. We demonstrated that – in the absence of harmonized income …

Obama Tax Reforms Are Misguided, Constantine N. Katsoris

Faculty Scholarship

No abstract provided.

Tefra-Partnership Refunds: Five Steps To Protect A Partner’S Rights, Mary A. Mcnulty, Robert D. Probasco, Carla C. Crapster

Faculty Scholarship

The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) established a unified procedure for determining the tax treatment of partnership items at the partnership level rather than the partner level. The TEFRA-partnership refund procedures differ from the refund claim procedures that apply to other taxpayers. For a TEFRA partnership, a refund claim is an administrative adjustment request (AAF) and a notice of deficiency is a notice of final partnership administrative adjustment (FPAA). Procedures for the assessment of additional tax attributable to partnership items have received much attention in recent years, but the procedures concerning refunds are complex and full …

The Loophole That Would Not Die: A Case Study In The Difficulty Of Greening The Internal Revenue Code, Lawrence A. Zelenak

Faculty Scholarship

Congress and the Treasury have commissioned the National Academy of Sciences (NAS) “to undertake a comprehensive review of the Internal Revenue Code of 1986 to identify the types of and specific tax provisions that have the largest effects on carbon and other greenhouse gas emissions and to estimate the magnitude of those effects.” The hope of the proponents of the NAS carbon audit is that Congress, once informed of the results of the audit, will respond by “greening” the Internal Revenue Code. This Essay cautions that a more environmentally friendly Code will not necessarily follow from the legislative consciousness-raising of …

Tax Expenditures, Reform, And Distributive Justice , Linda Sugin

Faculty Scholarship

Tax reform is coming, and it will be an important part of any plan to avert national fiscal disaster. The President's Fiscal Commission recently presented a proposal for comprehensive tax reform that will form the basis for serious legislative discussion. At the center of that proposal is elimination of "tax expenditures, " which are provisions in the tax law that operate like direct government spending. They include the charitable deduction, the home mortgage interest deduction, the exclusion for employer provided health insurance, the child credit, the earned income credit, education credits and deductions, the tax preference for retirement savings accounts …

The Internal Revenue Code And Latino Realities: A Critical Perspective, Leo P. Martinez, Jennifer M. Martinez

Faculty Scholarship

No abstract provided.

Can Tax Expenditure Analysis Be Divorced From A Normative Tax Base?: A Critique Of The 'New Paradigm' And Its Denouement, J. Clifton Fleming Jr., Robert J. Peroni

Faculty Scholarship

Tax expenditure analysis (TEA) requires a baseline for identifying tax provisions that provide subsidies or incentives instead of serving to define the tax base and to implement the tax. With respect to the federal income tax, the baseline historically has been the Schanz-Haig-Simons (SHS) definition of income with a few modifications. Critics have continuously and strongly attacked TEA by characterizing the SHS baseline as unprincipled, imprecise, and insufficiently related to our hybrid income/consumption tax system as it actually exists. Since the baseline is hopelessly defective, so the critics argue, TEA is fatally dysfunctional and the results of its application to …

E-Vat: An Electronically Collected Progressive Consumption Tax, Daniel S. Goldberg

Faculty Scholarship

This report proposes replacing the income tax with an electronic, progressive consumption tax that couples a credit-method VAT (modified for wages) with a progressive wage tax. I have called this proposal e-VAT (a convenient contraction for an electronic value added tax), because it is based on a business-level-credit VAT and can be collected automatically and electronically at the point of sale.

The essential advantage of e-VAT over the Hall-Rabushka flat tax is that e-VAT’s use of a credit VAT as its foundation facilitates automatic and electronic collection of the tax. A credit VAT lends itself to electronic monitoring and auditing …

Complex Tax Legislation In The Turbotax Era, Lawrence A. Zelenak

Faculty Scholarship

When tax returns were prepared with pencil and paper—in an era now gone forever—Congress did not impose income tax provisions of great computational complexity on large numbers of taxpayers, in the belief that it was unreasonable to require average taxpayers (or their paid preparers) to struggle with computationally complex provisions. As return preparation software gradually replaced the pencil in recent decades, the complexity constraint weakened and eventually disappeared. Congress has responded by imposing unprecedented computational complexity on large numbers of taxpayers—primarily through the expanded scope of the alternative minimum tax and the proliferation of phase outs of credits, deductions, and …

Rethinking Tax Priorities: Marriage Neutrality, Children, And Contemporary Families, James M. Puckett

Faculty Scholarship

Tax scholarship has long struggled with whether married taxpayers should be taxed differently from unmarried taxpayers. Currently, married taxpayers are subject to different tax rates than unmarried taxpayers, and may file a joint tax return. A married couple may pay a higher or lower amount of tax than an unmarried couple with the same total income, and a single person generally pays more tax on a given income than a married couple with a single earner with the same income. These outcomes are difficult to reconcile with a commitment to income tax progressivity, which in theory requires that higher incomes …

Much Uncertainty About Uncertain Tax Positions, Robert D. Probasco

Faculty Scholarship

The Internal Revenue Service (IRS) announced in January 2010 a new initiative to require certain businesses to report “uncertain tax positions” on a new schedule filed with their annual tax returns. Draft schedules and instructions issued in April 2010 clarified some of the mechanical aspects of the new requirement but left many open issues and questions. The IRS proposal built on requirements by the Financial Accounting Standards Board (FASB) in FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). The standard requires companies, in their financial statements, to reserve some of the benefits from any position taken …

Debt-Financed Consumption And A Hybrid Income-Consumption Tax, Lawrence A. Zelenak

Faculty Scholarship

The debate between proponents of income taxation and proponents of consumption taxation has focused almost exclusively on the differing treatment of savings under the two tax bases. This is odd, given that income and consumption tax bases also differ in their treatment of debt-financed consumption. This Essay addresses the largely-ignored question of the taxation of debt-financed consumption. It contends that a strong case can be made in favor of a hybrid income-consumption tax base under which taxation is triggered by the earlier of consumption or income, so that both debt-financed consumption and saved income are included in the tax base. …

Of Punitive Damages, Tax Deductions, And Tax-Aware Juries: A Response To Polsky And Markel, Lawrence A. Zelenak

Faculty Scholarship

In “Taxing Punitive Damages,” Gregg D. Polsky and Dan Markel argue that defendants paying punitive damages are under-punished relative to juries’ intentions, because tax-unaware juries do not take into account the fact that the deductibility of punitive damages significantly reduces defendants’ after-tax costs. They note that the Obama administration has proposed addressing the under-punishment problem by amending the Internal Revenue Code to disallow deductions for punitive damages (and for settlements paid on account of punitive damage claims). They conclude, however, that the proposal would be ineffective because defendants could avoid its impact by disguising nondeductible punitive damage settlements as deductible …

Philosophical Objection To The Optimal Tax Model, A , Linda Sugin

Faculty Scholarship

This article questions the normative power of the optimal tax model by examining assumptions made by the developer of that model, James Mirrlees' . It makes a case for moving beyond utilitarian conceptions of social welfare that are at the foundation of the optimal tax model, and that have become the dominant construct in tax policy analysis. In explaining why the Mirrlees assumptions are problematic, the Article argues for a nuanced, philosophical understanding of fairness that incorporates the role of taxation into a broader conception of a just society. A fair tax must satisfy the full range of demands that …

Misguided Relief: Unsimplifying The Standard Deduction, Alan L. Feld

Faculty Scholarship

The push to use federal money for benevolent purposes occasionally produces more cost than benefit, particularly when the outlay comes in the form of taxes forgiven. The Housing Assistance Tax Act of 2008 added a supplement to the basic standard deduction. A nonitemizing taxpayer may claim a deduction for real property taxes paid, up to $500, $1,000 in the case of a joint return. Initially, the change applied only to 2008, but subsequent legislation extended its life through 2009, and pending legislation would make it a permanent part of the Code. Although well intentioned, the real property tax provision makes …

Tax Policy, Rational Acts, And Other Myths, Leo P. Martinez

Faculty Scholarship

No abstract provided.

Tax Policy Challenges, Michael J. Graetz

Faculty Scholarship

In 1995, when the late, great Jack Nolan asked me to deliver the inaugural lecture in honor of Larry Woodworth, I was both honored and flattered. I had come to know Larry Woodworth beginning in 1969, when I was a rookie treasury tax policy staffer. At that time, he had already served the Joint Committee on Taxation for 25 years and had been the third Chief of Staff in its history beginning as chief of staff in 1964. Larry Woodworth was not only as knowledgeable about the tax law as anyone you would ever hope to meet, and as savvy …

Tax Enforcement For Gamers: High Penalties Or Strict Disclosure Rules?, Lawrence A. Zelenak

Faculty Scholarship

This essay responds to Alex Raskolnikov’s proposal to replace the current federal income tax compliance regime with a two-track approach based on taxpayer choice. The “deterrence regime” (DR) would be designed to be chosen by “gamers”, and the “compliance regime” (CR) would be designed to be chosen by all other taxpayers. Penalty rates would be significantly higher in the DR than in the CR. In this response, Lawrence Zelenak notes that the tax shelter disclosure rules of current law can also be viewed as a way of imposing a special compliance regime-featuring high odds of detection rather than high penalty …

Elimination Of The Deduction For Business Entertainment Expenses, Richard L. Schmalbeck, Jay A. Soled

Faculty Scholarship

The proposal is offered as a part of the Shelf Project, a collaboration by tax professionals to develop and perfect proposals to help Congress when it needs to raise revenue. Shelf Project proposals are intended to raise revenue without raising tax rates because the best systems have taxes that are unavoidable to reach the lowest feasible tax rates.

This proposal would deny deductions for all business entertainment expenses. Also, the definition of the term ‘‘entertainment’’ would be narrowed so that expenses that are incurred in a clear business setting and are deeply rooted in producing immediate income or in mining …

Tax Policy And Personal Identity Over Time, Lawrence A. Zelenak

Faculty Scholarship

Tax policy analysts often claim that tax distributional analysis should be based on a lifetime perspective, at least as a theoretical ideal. A prominent argument in favor of a consumption tax base over an income tax base appeals to this lifetime equity perspective, as does the argument for lifetime income averaging under an income tax with progressive marginal rates. These appeals to lifetime equity assume, in most cases without discussion, that personal identity over time is an unproblematic concept, so that the whole-life person is clearly the ideal unit for purposes of distributional analysis. However, the philosopher Derek Parfit claims …

Cancellation-Of-Indebtedness Income And Transactional Accounting, Lawrence A. Zelenak

Faculty Scholarship

More than three-quarters of a century after the Supreme Court’s decision in United States v. Kirby Lumber established that the cancellation of a debt produces taxable income, there is still uncertainty - both in the courts and among commentators - concerning the rationale for the taxation of cancellation-of-debt (COD) income. Is the taxation of COD income based on the simple fact that the cancellation of a debt improves the taxpayer’s balance sheet, thus increasing the taxpayer’s net worth in the year of cancellation? Or is it based on a multi-year perspective, in which inclusion of the cancelled debt in income …

Relational Tax Planning Under Risk-Based Rules, Alex Raskolnikov

Faculty Scholarship

Risk-based rules are the tax system's primary response to aggressive tax planning. They usually grant benefits only to those taxpayers who accept risk of changes in market prices (market risk) or business opportunities (business risk). Attempts to circumvent these rules by hedging, contractual safeguards, and diversification are well-understood. The same cannot be said about a very different type of tax planning. Instead of reducing risk directly, some taxpayers change the nature of risk. They enter into informal, legally unenforceable agreements with contractual counterparties that are designed to eliminate market or business risk entirely. The new uncertainty these tax planners inevitably …

A Multilateral Solution For The Income Tax Treatment Of Interest Expenses, Michael J. Graetz

Faculty Scholarship

Recent developments – including greater taxpayer sophistication in structuring and locating international financing arrangements, increased government concerns with the role of debt in sophisticated tax avoidance techniques, and disruption by decisions of the European Court of Justice of member states' regimes limiting interest deductions – have stimulated new laws and policy controversies concerning the international tax treatment of interest expenses. National rules are in flux regarding the financing of both inbound and outbound transactions.

Heretofore, the question of the proper treatment of interest expense has generally been looked at from the perspective of either inbound or outbound investment. As a …

A Structural Critique Of Trader Taxation, Shu-Yi Oei

Faculty Scholarship

This article scrutinizes the structural elements underlying the unusual tax treatment of securities traders under current law. After summarizing the distinguishing features of trader taxation, this article explains how the treatment of securities traders today has occurred due to a long-standing, legislatively created disjuncture at the point where the “to customers” requirement in the capital asset rules (i.e., the requirement that traders must sell “to customers” in order to escape capital asset classification and court findings that they do not) and the “trade or business” concept intersect. The article reviews some of the traditional critiques that have been levied against …