Federal Income Tax Research Articles

Recent Developments in Federal Income Taxation: The Year 2009

This recent developments outline discusses, and provides context to understand the significance of, the most important judicial decisions and administrative rulings and regulations promulgated by the Internal Revenue Service and Treasury Department during the most recent twelve months — and sometimes a little farther back in time if we find the item particularly humorous or outrageous. Most Treasury Regulations, however, are so complex that they cannot be discussed in detail and, anyway, only a devout masochist would read them all the way through; just the basic topic and fundamental principles are highlighted – unless one of us decides to go nuts and spend several pages writing it up. This is the reason that the outline is getting to be as long as it is. Amendments to the Internal Revenue Code generally are not discussed except to the extent that (1) they are of major significance, (2) they have led to administrative rulings and regulations, (3) they have affected previously issued rulings and regulations otherwise covered by the outline, or (4) they provide Dan and Marty the opportunity to mock our elected representatives; again, sometimes at least one of us goes nuts and writes up the most trivial of legislative changes. The outline focuses primarily on topics of broad general interest (to the three of us, at least) – income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties. It deals summarily with qualified pension and profit sharing plans, and generally does not deal with international taxation or specialized industries, such as banking, insurance, and financial services. Please read this outline at your own risk; we take no responsibility for any misinformation in it, whether occasioned by our advancing ages or our increasing indifference as to whether we get any particular item right. Any and all of the many mistakes in this outline are Marty’s responsibility; any political bias or offensive language is Ira’s; and any useful information is Dan’s.

Recent Developments in Federal Income Taxation: The Year 2008

This recent developments outline discusses, and provides context to understand the significance of, the most important judicial decisions and administrative rulings and regulations promulgated by the Internal Revenue Service and Treasury Department during 2008 — and sometimes a little farther back in time if we find the item particularly humorous or outrageous. Most Treasury Regulations, however, are so complex that they cannot be discussed in detail and, anyway, only a devout masochist would read them all the way through; just the basic topic and fundamental principles are highlighted. Amendments to theInternal Revenue Code generally are not discussed except to the extent that (1) they are of major significance, (2) they have led to administrative rulings and regulations, (3) they have affected previously issued rulings and regulations otherwise covered by the outline, or (4) they provide Dan and Marty the opportunity to mock our elected representatives. The outline focuses primarily on topics of broad general interest (to the three of us, at least) – income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties. It deals summarily with qualified pension and profit sharing plans, and generally does not deal with international taxation or specialized industries, such as banking, insurance, and financial services. Please read this outline at your own risk; we take no responsibility for any misinformation in it, whether occasioned by our advancing ages or our increasing indifference as to whether we get any particular item right. Any mistakes in this outline are Marty’s responsibility; any political bias or offensive language is Ira’s; and any useful information is Dan’s.

Recent Developments in Federal Income Taxation: The Year 2010

This recent developments outline discusses, and provides context to understand the significance of, the most important judicial decisions and administrative rulings and regulations promulgated by the Internal Revenue Service and Treasury Department during the year 2010 — and sometimes a little farther back in time if we find the item particularly humorous or outrageous. Most Treasury Regulations, however, are so complex that they cannot be discussed in detail and, anyway, only a devout masochist would read them all the way through; just the basic topic and fundamental principles are highlighted – unless one of us decides to go nuts and spend several pages writing it up. This is the reason that the outline is getting to be as long as it is. Amendments to the Internal Revenue Code generally are not discussed except to the extent that (1) they are of major significance, (2) they have led to administrative rulings and regulations, (3) they have affected previously issued rulings and regulations otherwise covered by the outline, or (4) they provide Dan and Marty the opportunity to mock our elected representatives; again, sometimes at least one of us goes nuts and writes up the most trivial of legislative changes. The outline focuses primarily on topics of broad general interest (to the three of us, at least) – income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties. It deals summarily with qualified pension and profit sharing plans, and generally does not deal with international taxation or specialized industries, such as banking, insurance, and financial services. Please read this outline at your own risk; we take no responsibility for any misinformation in it, whether occasioned by our advancing ages or our increasing indifference as to whether we get any particular item right. Any mistakes in this outline are Marty’s responsibility; any political bias or offensive language is Ira’s; and any useful information is Dan’s.

Work Product Immunity for Attorney-Created Tax Accrual Workpapers?: The Aftermath of United States v. Textron

United States v. Textron, Inc. has been a high-profile case involving the applicability of work product immunity to attorney-prepared documents known as "tax accrual workpapers." The Textron decision is worthy of careful analysis because it is the first decision at the Court of Appeals level to consider work product immunity for attorney-created tax accrual workpapers. The U.S. District Court ruled that work product immunity applied to the tax accrual workpapers, the First Circuit Court of Appeals ruled that work product immunity did not apply, and on May 24, 2010, the United States Supreme Court denied the certiorari petition in the case. Accordingly, the Textron decision is final, and it is appropriate to review the scope of work product immunity as it may apply to tax accrual workpapers. The denial of certiorari means that the lower federal courts must decide, without the benefit of Supreme Court guidance in Textron, whether work product immunity applies to attorney- prepared tax accrual workpapers.I conclude that attorney-prepared tax accrual workpapers technically do not and, as a matter of policy, should not qualify for protection as work product because of (1) the significant role of tax accrual workpapers in financial accounting and federal income tax reporting and (2) the specific statutory authority of section 7602 empowering the Internal Revenue Service (IRS) to collect information from taxpayers. I propose that courts embrace a doctrine of "tax exceptionalism" for purposes of work product immunity cases, and this doctrine acknowledges the unique public policy considerations that support effective tax administration. Permitting discovery of tax accrual workpapers raises significant fairness issues, but discovery of these workpapers is consistent with extant caselaw regarding work product immunity as well as with the purposes underlying work product immunity.

Recent Developments in Federal Income Taxation: The Year 2011

This recent developments outline discusses, and provides context to understand the significance of, the most important judicial decisions and administrative rulings and regulations promulgated by the Internal Revenue Service and Treasury Department during the most recent twelve months — and sometimes a little farther back in time if we find the item particularly humorous or outrageous. Most Treasury Regulations, however, are so complex that they cannot be discussed in detail and, anyway, only a devout masochist would read them all the way through; just the basic topic and fundamental principles are highlighted – unless one of us decides to go nuts and spend several pages writing one up. This is the reason that the outline is getting to be as long as it is. Amendments to the Internal Revenue Code generally are not discussed except to the extent that (1) they are of major significance, (2) they have led to administrative rulings and regulations, (3) they have affected previously issued rulings and regulations otherwise covered by the outline, or (4) they provide Dan and Marty the opportunity to mock our elected representatives; again, sometimes at least one of us goes nuts and writes up the most trivial of legislative changes. The outline focuses primarily on topics of broad general interest (to the three of us, at least) – income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties. It deals summarily with qualified pension and profit sharing plans, and generally does not deal with international taxation or specialized industries, such as banking, insurance, and financial services. Please read this outline at your own risk; we take no responsibility for any misinformation in it, whether occasioned by our advancing ages or our increasing indifference as to whether we get any particular item right. Any mistakes in this outline are Marty’s responsibility; any political bias or offensive language is Ira’s; and any useful information is Dan’s.

Legal Ethics and Federal Taxes, 1945-1965: Patriotism, Duties, and Advice

"We are professional men not mere hired hands."In 2013 we will celebrate (or, at least, commemorate) the century-mark of the Sixteenth Amendment and the federal income tax. We should anticipate a flow of historical reflections on this first century of income taxation. These historical reflections on the income tax should develop our understanding of what has changed in the past century, and just as importantly, what has not changed, and will give us some idea of why one change occurred rather than another in any given case. It is likely that these reflections will focus on acts of Congress, nearly acts of Congress, and acts urged on Congress by enthusiastic supporters of one persuasion or another; the ebb and flow of economic theories and fiscal policies; responses to political, business, and technological changes; and, of course, important court cases that went this way and that way and, sometimes, the right way.Yet the history of the income tax is, in large part, also the history of tax lawyers. Without these lawyers working to interpret the tax code, to advise clients on planning with the tax code, and to advocate for the rights of clients under the tax code, the income tax system would not be what it has become. The role of these lawyers, especially their own sense of right and wrong, is rarely the subject of legal histories. Economics, politics, and financial innovations may make better reading, and may be better at explaining legal histories, but legal history includes legal ethics.

Relighting the Charitable Deduction: A Proposed Public Benefit Exception

"Let no man’s ghost say his training ever let him down."Throughout the country, firefighters risk their lives on a daily basis to keep the public safe. It is, therefore, imperative they receive the best possible training. One invaluable training method is live burn training, in which a structure is set on fire providing firefighters with “a level of realism that is unsurpassed.” Fire departments, both career and volunteer, as well as numerous municipal departments conduct various training exercises, including roof ventilation, domestic violence exercises, simulated meth lab explosions, room-to-room fire practice, firefighter survival techniques, arson investigation training, rescue techniques, and/or firefighter down techniques, through the donation of homes that are finally burned to the ground as part of live burn training.For over thirty-five years, relying on a United States Tax Court case, many believed a taxpayer could claim a charitable deduction for the donation of the taxpayer’s home to the local municipality for live burn training, while still retaining ownership of the underlying land (live burn donation). In 2004, however, the Internal Revenue Service (the Service) established a task force, charged with the sole purpose of extinguishing live burn donations, and requested that local municipalities not cooperate with taxpayers in executing the requisite paperwork in claiming a charitable deduction for a live burn donation. In 2009, the deductibility of a live burn donation was thrust into the public spotlight as the media publicized the Service’s attack on the charitable deduction claimed by Kirk Herbstreit, an ESPN commentator and former Ohio State quarterback, for the donation of his home to the local fire department. Soon after, in 2010, the live burn donation was back in the headlines as it was exposed that Oregon gubernatorial candidate, Chris Dudley, claimed a deduction on his 2004 federal income tax return for a live burn donation so he could build a new residence on the land. Consequently, in recent years, there has been much confusion and debate on whether live burn donations qualify for charitable deductions.

Recent Developments in Federal Income Taxation: The Year 2012

This recent developments outline discusses, and provides context to understand the significance of, the most important judicial decisions and administrative rulings and regulations promulgated by the Internal Revenue Service and Treasury Department during the most recent twelve months — and sometimes a little farther back in time if we find the item particularly humorous or outrageous. Most Treasury Regulations, however, are so complex that they cannot be discussed in detail and, anyway, only a devout masochist would read them all the way through; just the basic topic and fundamental principles are highlighted – unless one of us decides to go nuts and spend several pages writing one up. This is the reason that the outline is getting to be as long as it is. Amendments to the Internal Revenue Code generally are not discussed except to the extent that (1) they are of major significance, (2) they have led to administrative rulings and regulations, (3) they have affected previously issued rulings and regulations otherwise covered by the outline, or (4) they provide Dan and Marty the opportunity to mock our elected representatives; again, sometimes at least one of us goes nuts and writes up the most trivial of legislative changes. The outline focuses primarily on topics of broad general interest (to the three of us, at least) – income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties. It deals summarily with qualified pension and profit sharing plans, and generally does not deal with international taxation or specialized industries, such as banking, insurance, and financial services. Please read this outline at your own risk; we take no responsibility for any misinformation in it, whether occasioned by our advancing ages or our increasing indifference as to whether we get any particular item right. Any mistakes in this outline are Marty’s responsibility; any political bias or offensivelanguage is Ira’s; and Dan is just irresponsible.

Everything You Always to Know About Farid but Were Afraid to Ask

Younger readers might be interested to know that Everything You Always Wanted to Know About Sex but were Afraid to Ask was a 1972 Woody Allen film that took its title from a book of the same name by David Reuben, M.D. Unlike the film, the book was not comedic. Indeed, Dr. Reuben was not happy about the movie and told the L.A. Herald-Examiner, “I didn’t enjoy the movie because it impressed me as a sexual tragedy. Every episode in the picture was a chronicle of sexual failure, which was the converse of everything in the book.” Jeff Stafford, Everything You Always Wanted to Know About Sex . . . But Were Afraid to Ask, TURNER CLASSIC MOVIES, http://www.tcm.com/thismonth/article/?cid=12726&rss=mrqe (last visited July 25, 2012). This Article suggests that the Farid story is more like Allen’s movie than Reuben’s book.Students engaged in the study of federal income taxation routinely examine the case of Farid-es-Sultaneh v. Commissioner, in which the Court of Appeals for the Second Circuit addressed a wife’s tax basis in stock she received under the terms of an antenuptial agreement. While the case invariably engenders a lively and engaging class discussion, the black letter law ultimately is straightforward: her basis equaled the fair market value of the shares on the date they were received because they were acquired for consideration (that being the release of marital rights in her future husband’s property). The government had argued that her basis was the same as her husband’s (a carryover basis) because she received the stock as a gift.Perhaps students’ enthusiasm for the case results from a sense that they simply do not know the full story. After all, why would an engaged woman accept stock worth $787,500 in exchange for the possibility of receiving over $33 million upon her husband’s death — particularly when her fiancé was twenty-five years her senior with a life expectancy of only sixteen and one-half years? The recital of facts in the court’s opinion reflects that the marriage was brief and, one might suspect, tumultuous. Students are also confused by the case name: how did an American citizen end up as Farid-Es-Sultaneh? Alas, neither the trial court nor the Court of Appeals betrayed even the slightest interest in the taxpayer’s motives or the details underlying what surely must have been a titillating tale

Startup Ltd.: Tax Planning and Initial Incorporation Location

Do startup firms consider taxes when they decide where to organize? This Article analyzes the incorporation decisions of relatively new, US-based private business enterprises with global ambitions. Such startup firms generally organize as US corporations. This Article theorizes this dominant structure and its exceptions, drawing from prior literature and illustrating with informal interview results. It identifies explanatory factors including limited tax benefits of non-US incorporation, legal benefits of US incorporation, startups’ liquidity and other resource constraints, and investor preferences.Part II explains the different treatment of US- and non-US-parented multinational corporations (MNCs) under US federal income tax law. Some non-US-parented MNC structures have tax advantages compared to US-parented MNC structures. This prompts the hypothesis that US-based startup corporations may incorporate outside the United States, for example in a tax haven jurisdiction, if the non-tax costs of a non-US incorporation decision are sufficiently low.Part III reports that available empirical work shows few examples of startup corporations headquartered in the United States and incorporated in tax haven jurisdictions. Prior work and informal interviews reported here support the conclusion that venture-backed Silicon Valley startups generally organize in the United States, form corporations rather than partnerships or LLCs, and prefer the state of Delaware as an incorporation jurisdiction. Available examples, drawn in large part from initial public offering (IPO) evidence, corroborate the conclusion that Delaware incorporation is the norm. The evidence also reveals exceptions to the general rule of US incorporation concentrated in particular industries, such as insurance and marine transportation. Part III also identifies several additional examples of US-based, non-US-incorporated firms, scattered among different industries.Part IV explores several possible reasons for the dominant structure of US incorporation for startup firms. One reason is the limited relative tax advantages of non-US incorporation. For example, US-parented MNCs can often obtain low tax rates on non-US income, sometimes access offshore cash without onerous US tax results, and erode their US taxable income base to some extent. Another reason is that a US-parented structure can provide corporate governance and other non-tax legal advantages

Guaranteed Rate-setting Behavior, Life Insurance Premium, and Policyholder Protection

ABSTRACT This study explores the determinants of an insurer’s guaranteed rate based on a contingent claim model. According to the model development, we structure and estimate the guaranteed rate setting and policyholder protection equations. A time-series approach explains the guaranteed rate-setting behavior and insurance stability captured by policyholder protection from 1990 to 2018. The evidence suggests that derivatives, life insurance premiums, administrative costs, and federal income tax affect the insurer’s guaranteed rate-setting behavior. Increasing life insurance premiums and administrative costs in asset-liability matching management significantly enhance policyholder protection, contributing to insurance stability.

Do credit unions have distinct objectives? Evidence from executive compensation structures

AbstractCredit unions compete directly with commercial banks in markets for consumer financial services yet receive an exemption from federal corporate income tax. Commercial banks claim that credit unions are no different than banks and that the credit union tax exemption represents an unfair competitive advantage. Credit unions counter that while they offer similar products and services, they differ from commercial banks in terms of structure and mission, given their not‐for‐profit, cooperative status. In this paper, we test for substantive differences in the objective functions of commercial banks and nonprofit credit unions by comparing CEO compensation structures. Drawing on the relevant principal–agent literature, we provide several arguments to support the hypotheses that credit union boards of directors establish lower‐powered incentive contracts with their CEOs relative to similarly sized commercial banks, and offer lower total compensation. We find that credit union CEOs receive approximately 250% less performance‐based compensation relative to CEOs of similarly sized community banks. Bank CEOs also earn approximately 15% to 20% more total compensation on average. The results are generally robust to controlling for CEO‐ and board‐level characteristics, local economic conditions, and institution‐level indicators of size, growth, complexity, liquidity and risk. The findings suggest important differences in incentive structures and objectives between banks and credit unions.

Important Developments in Federal Income Taxation

Important Developments in Federal Income Taxation

The taxation of income from technical services under the Federal Income Tax Proclamation of Ethiopia: income labelling and tax jurisdiction issues

The taxation of income from technical services under the Federal Income Tax Proclamation of Ethiopia: income labelling and tax jurisdiction issues

The Benefits and Costs of a Child Allowance

AbstractThis article conducts a benefit-cost analysis of a child allowance. Through a systematic literature review of the highest quality evidence on the causal effects of cash and near-cash transfers, this article produces core estimates on the benefits and costs per child and per adult of increasing household income by $1000, which can be used for any cash or near-cash program that increases household income. We then apply these estimates to three child allowance proposals, with the main proposal converting the $2000 Child Tax Credit in the federal income tax code into a fully refundable and more generous child allowance of $3600 per child ages 0–5 and $3000 per child ages 6–17, as enacted for 1 year in the American Rescue Plan. Aggregate costs and benefits are estimated via micro-simulation. Our estimates indicate that making the $2000 Child Tax Credit fully refundable and increasing benefits to $3000/$3600 would cost $97 billion per year and generate social benefits of $929 billion per year. Sensitivity analyses indicate that the results are robust to alternative assumptions and that each of the three child allowance proposals produces a very strong to an extraordinarily strong return for the U.S. population.

Tax Expenditures and the Tax Reform Act of 1969 in the United States

AbstractIn the United States, tax favoritism—an approach that has weakened the extractive capacity of the federal government by providing tax loopholes and preferences for taxpayers—has remained since the 1930s. It has consumed the amount of tax revenue the government can spend and therefore weakened the possibility of the redistribution of fiscal resources. It has also made the federal tax system complicated and inequitable, resulting in undermining taxpayer consent. Therefore, since the 1930s, a tax reform to create a simple, fair, and equitable federal income tax system with the capacity to raise revenue has been long overdue. Many scholars have evaluated the Tax Reform Act of 1969 (TRA69), which Richard M. Nixon signed into law on December 30, 1969, as one of the most successful steps toward accomplishing this goal. This article demonstrates that TRA69 left tax favoritism in the United States. Furthermore, it points out that TRA69 turned taxpayers against the idea of federal taxation, a shift in public perception that greatly impacted tax reform in the years to follow.

When lawmakers met progressives. Debating the American federal income tax of 1894

When lawmakers met progressives. Debating the American federal income tax of 1894

Independent Accountant’s Review Report

Independent Accountant’s Review Report

Tax Reform, Company Value, and Biden Proposals

Federal income tax legislative reforms impact both investors and companies. It is prudent to understand these legislative effects before the next round of tax legislation. This article examines whether announcements regarding the passage of the Tax Cuts and Jobs Act of 2017 (TCJA) affected the value of publicly traded companies. The authors use a multiple-date event study methodology to analyze whether abnormal returns were present for companies in the S&P 500 Index after various announcements of the TCJA’s passage by the US Congress. Results on many of the event dates provide support that the TCJA had a positive impact on company value. They also analyze differences among companies based on dividend practices, multinationality, revenue growth, and effective tax rates. Their findings provide valuable insight as US companies and investors prepare for the possibility of corporate tax changes from the Biden administration.

Book Reviews

Book Reviews