Article | Tax LawHow The States Can Tax Shifted Corporate Profits: An Application of Strategic Conformityby Darien Shanske* […]
This Note will center on the TCJA’s unpopularity, the charitable contribution deduction, and the adverse effect the TCJA is projected to have on charitable giving. It will conclude that now is an optimal time to expand the charitable contribution deduction. The expansion of the charitable contribution deduction would likely be popular for many of the same reasons that the TCJA is currently unpopular. The proposed expansion will also address some of the problems with charitable giving created or exacerbated by the TCJA…
This Note will use various tax-policy projections regarding the effects of the TCJA for tax year 2018. These projections cannot account for all outside variables, such as the state of the economy, which is affected by many factors besides taxation. With this in mind, the aspects of this Note that rely on the projections are tax policy specific, and the outside variables that affect the actual tax year 2018 statistics are not themselves within the scope of this Note. Therefore, unless there are significant, long-term, unexpected outcomes to the TCJA that lead to the alteration of tax policy projection methods, the projections can reasonably be used as data for the purposes of this Note.
Few organizational acronyms are more familiar to Americans than those of the National Collegiate Athletic Association (“NCAA”) and the Internal Revenue Service (“IRS”). Although neither organization is particularly popular,1 both loom large in American life and popular culture. Because there is a tax aspect to just about everything, it should come as no surprise that the domains of the NCAA and the IRS overlap in a number of ways. For many decades, college athletics have enjoyed unreasonably generous tax treatment—sometimes because of the failure of the IRS to enforce the tax laws enacted by Congress, and sometimes because Congress itself has conferred dubious tax benefits on college sports. Very recently, however, there have been signs of what may be a major attitudinal shift on the part of Congress—although, so far, there have been no signs of a corresponding change at the IRS.
This Article offers an in-depth look at the history and current status of four areas of intersection between the federal tax laws and college sports. Part I considers the possible application of the tax on unrelated business income to big-time college sports. It concludes that, even in the absence of any change in the unrelated business income statute, there is a strong argument that revenues from the televising of college sports should be subject to the unrelated business income tax. Part II examines the tax status of athletic scholarships. It explains that athletic scholarships, as currently structured, are taxable under the terms of the Internal Revenue Code but that the IRS seems to have made a conscious decision not to enforce the law.
While the first two Parts of this Article address areas in which the traditional sweetheart arrangement between the IRS and the NCAA remains in effect, the final two Parts of this Article consider areas in which Congress has—very recently—intervened to increase the tax burden on college athletics. Part III describes how Congress, three decades ago, explicitly permitted taxpayers to claim charitable deductions for most of the cost of season tickets to college football and basketball games and how Congress in 2017—to the surprise of many observers, including the authors of this article—repealed this special tax benefit. Finally, Part IV addresses issues of both statutory interpretation and policy raised by Congress’s creation, in 2017, of a twenty-one percent excise tax on at least some universities that were paying seven-figure salaries to their football and basketball coaches. This Article’s conclusion suggests the IRS should follow the lead of Congress and reconsider the administrative favoritism toward college sports described in Parts I and II.
Although sometimes difficult to detect, governmental power abuses can have detrimental impacts. Property tax assessments provide an effective lens to examine this phenomenon because, given the complexity of calculating property tax assessments, it is difficult for citizens to know when local government has exceeded its legitimate taxing authority and crossed into the realm of illegal extraction. Michigan is an ideal case study because it protects property owners by making assessment-related power abuses more visible through a unique state constitutional provision: property tax assessments cannot exceed 50 percent of a property’s market value. Abuses have persisted nevertheless. Between 2011 and 2015, one in four properties in Detroit were subject to property tax foreclosure, and inflated property tax assessments that violate the Michigan Constitution are the unseen thread in this complex tapestry of foreclosure.
Against this backdrop, this Article makes three primary contributions. First, no other article has argued and proven that property tax assessments in Detroit are illegal. Using assessment and sales data from 2009–2015 for the entire City of Detroit, we find that property tax assessments are substantially in excess of the state constitutional limit, and this illegality is most pronounced for lower-valued properties. Second, to remedy inflated assessments, in 2014 and 2015 Detroit’s assessor implemented assessment decreases ranging from 5 percent to 20 percent for select districts, but we find that systemic assessment inequity persisted for lower valued properties despite these reductions. Third, this Article uses the case of illegal property tax assessments in Detroit to develop a new theoretical concept called “stategraft,” which is when state agents transfer property from residents to the state in violation of the state’s own laws and to the detriment of a vulnerable group. Although the concept was developed using the Detroit case, stategraft applies beyond Detroit to many other cases, including the discriminatory fines imposed and enforced by the police and courts in Ferguson, Missouri; broken treaties with Native Americans; and abuses of civil forfeiture laws.
The estate tax and income tax rules independently attempt to either promote or deter different behaviors. The interaction of these different rules often leads to disparate or unintended consequences to taxpayers: for example, achieving an overall lower effective tax rate by paying more estate tax to lower the income tax rate. This overlay of the estate tax rules on the income tax rules is a key problem at the core of our tax system. Yet, few scholars focus on this topic.
In this Article, I document the actual behavior of the trust and estate bar. By looking at how attorneys approach the intersection of estate and income taxes, I demonstrate deficiencies in the current scholarly belief, which is based largely on anecdotal information, that the wealthy have a preference for paying less or no estate tax. I show the real-world preferences that indicate wealthy taxpayers are paying high levels of estate tax to minimize the income tax incidents. After showing the shift of preferences and the resulting overall tax loss to the fisc, the Article then proposes useful policy solutions, such as elimination of the estate tax or using death as an income tax triggering event.
This Article sets out the case for repealing the $1 million tax cap on executive pay. The cap is easily avoided and, when not avoided, widely ignored. Since enactment in 1993, the cap has had little effect in reducing executive pay or in linking pay to performance. Even worse, the cap increases corporate tax liabilities—liabilities that likely burden workers and investors. In effect, the cap punishes rank-and-file employees and shareholders for pay deals made by directors and executives. This Article demonstrates why prominent reform proposals would be ineffective and counterproductive. It then devises a novel reform approach—a confiscatory tax on excessive executive pay—that would limit executive pay without burdening workers or investors. But this Article rejects the confiscatory tax because of the serious distortions that it would cause for business-organization and labor-supply decisions. Ultimately, the superior policy position is to repeal the cap. Concerns about income inequality are better addressed through robust progressive taxation, and concerns about corporate governance are better addressed through non-tax mechanisms, such as reform of the business-judgment rule and expansion of director liability.
Fairness in the administration of the tax law is a subject of intense debate in the United States. As myriad headlines reveal, the Internal Revenue Service (“IRS”) has been accused of failing to enforce the tax law equitably in its review of tax-exempt status applications by political organizations, international tax structures of multinational corporations, and estate tax returns of millionaires, among other areas. Many have argued that greater “tax transparency” would better empower the public to hold the IRS accountable and the IRS to defend itself against accusations of malfeasance. Mandatory public disclosure of taxpayers’ tax return information is often proposed as a way to achieve greater tax transparency. Yet, in addition to concerns regarding exposure of personal and proprietary information, broad public disclosure measures pose potential threats to the taxing authority’s ability to enforce the tax law.
Given the competing values of accountability and enforcement, what tax return information should be observable by the public? This Article considers the role of timing. The IRS continually engages in enforcement actions ex post—after taxpayers pursue transactions and claim tax positions—such as by conducting audits or negotiating settlements. But it also frequently engages in actions ex ante—before taxpayers pursue transactions and claim tax positions—by issuing advance tax rulings to, and entering into agreements with, specific taxpayers. While current law appears to require public disclosure of certain types of ex ante tax administration, many forms of ex ante tax administration remain concealed from public view. This Article argues that documents related to a specific taxpayer’s tax affairs that reflect ex ante tax administration should be publicly accessible as a means of accountability, but that documents that reflect ex post tax actions should remain private in order to preserve effective tax enforcement. Further, this Article proposes that the public should have access not only to ex ante tax administration actions where the taxing authority grants taxpayers’ requests, but also to those actions where the taxing authority denies such requests, even if it does so without issuing an official written determination, a concept it defines as “dual tax transparency.”
The separation of a taxpayer’s income into capital and labor components, and the application of separate rate schedules to each, are hallmarks of “dual income tax” instruments, of the sort explored in practice most comprehensively by several Nordic countries. Building on earlier work on dual tax systems and capital income tax structures, I propose a novel and reasonably accurate flat-rate tax on capital income that builds on well-understood tax policies, that achieves integration between corporate and investor income, and that successfully distinguishes capital from labor income. I term this tax instrument the Dual Business Enterprise Income Tax, or Dual BEIT. Its virtues include minimizing the relevance of the realization doctrine, eliminating distinctions across different forms of capital investment, and offering business enterprises a profits (consumption) tax environment in which to operate.
To make the project more tractable, the two themes just advanced—the why and the how of the Dual BEIT—are each the subject of a separate article. This is the “why” Article. Together, the two demonstrate that the Dual BEIT satisfies theoretical concerns, once those are filtered through the political economy imperatives of the quotidian world, and is straightforward to implement and administer.
The United States is the only country that taxes its citizens’ worldwide income, even when those citizens live indefinitely abroad. This Article critically evaluates the traditional equity, efficiency, and administrability arguments for taxing nonresident citizens. It also raises new concerns about citizenship taxation, including that it puts the United States at a disadvantage when competing with other countries for highly skilled migrants.
The American colonial protest against Parliament’s Stamp Act was a landmark event in the history of the Founding Era, propelling the colonies toward independence. To date, scholars have focused on colonists’ constitutional objections to the Stamp Act. Yet, the Stamp Act taxed legal and institutional services and, as this Article describes, the opposition to the Stamp Act also focused on defending low-cost institutions that served local communities. It examines the arguments for and against the Stamp Act as revealing two distinct visions of the role for institutions in economic growth. It suggests that American independence affirmed colonists’ commitment to low-cost locally managed institutions within their developing economy.