Federal Tax Law Research Articles

Employer-Sponsored, Personal, And Portable Health Insurance

Personal and portable health insurance is an idea whose time has come. Despite its stated intent, however, the Health Insurance Portability and Accountability Act (HIPAA) strongly discourages individually owned, portable insurance. Federal tax laws do the same. Some examples of portable benefits exist, such as the TIAA-CREF system. This paper considers three reform models for moving toward personal, portable coverage: the National Center for Policy Analysis-Texas Blue Cross Blue Shield proposal, the Massachusetts health care plan, and a health reimbursement arrangement (HRA) approach. Congress could make the transition smoother by clarifying when and if individually owned insurance can be purchased with pretax dollars.

The Compliance Costs of Maintaining Tax Exempt Status

Under U.S. federal and state tax laws, qualifying nonprofit organizations receive several kinds of tax benefits. However, the benefits come with compliance costs, as eligible organizations must first apply f or them and then file the annual reports necessary to maintain them. We use a national survey to measure the latter, estimating them at $3.2 billion for 2000. Additional results are: (1) evidence of scale economies; (2) choosing to file the federal Form 990 (over the shorter Form 990-EZ) raises expenditures on professional advisors; and (3) using a consolidated reporting form or electronic filing reduces state costs.

Should California Adopt an Earned Income Tax Credit?

Over the past thirty years, the federal earned income tax credit (EITC) has grown from a relatively modest program to the largest income transfer program in the country. For the tax year 2003, approximately $39.2 billion in EITC benefits were paid out to more than 22 million claimants - an average benefit of $1,772 per claimant. As the federal EITC has grown in both size and popularity, state government officials have begun to consider income transfer programs designed to build on its success. Among the programs most commonly considered is the state-level EITC. As of August 2005, nineteen states had adopted EITCs based on the federal credit. To date, however, the country's largest state, California, has refused to adopt a state-level EITC. In this article, I consider the arguments for a California EITC and examine an alternative policy option that has not yet been discussed in the literature - namely, that a state income transfer program may be designed not only to supplement the federal EITC, but also to exploit and take maximum advantage of the benefits provided by the federal program. This can be done through the adoption of state policies that increase the earned income of EITC recipients whose income falls within the phase-in range of the federal credit. Rather than just supplementing the federal credit, the idea would be to maximize the amount of federal EITC dollars flowing into the state by ensuring that each potential EITC beneficiary earns an amount of income equal to or greater than the plateau range within the federal EITC structure. A properly designed state program - i.e., one that takes account of the nuance and detail of federal tax law - can target state resources at those with the lowest levels of household income, while maximizing tax benefits available under federal law.

Why Trade Law Needs a Theory of Justice

I. DOES TRADE LAW NEED A THEORY OF JUSTICE? I'd like to begin by noting what today's question itself might imply. It may suggest to some that trade law does not already have a theory of justice, and to others perhaps even that it does not need one. Both implications would be mistaken. In my remarks I would like to make four points: first, that trade law necessarily involves theories of justice; second, that while the notion of trade and justice can raise several objections, these objections can be answered; third, that contemporary trade discourse reveals that in fact we already have a dominant theory of trade justice, utilitarianism, which needs to be outed as such and seriously re-examined; and finally, to illustrate the kind of work that is going on, and needs to go on, if we are going to take justice seriously in trade law. (1) Let me take a first casual pass at our question by juxtaposing a different one: does our federal income tax law or health care delivery system need a theory of justice? To this question we generally answer yes. Our income tax and health care systems are both fundamental social institutions involving significant resources, and both systems involve decisions about how those resources are allocated. In such cases we intuitively want to know if those decisions are fair. Theories of justice play an essential role in answering that question. Tax law and health care are two areas in which academics and policy makers routinely refer to principles of justice in working out their intuitions about fairness, and in analyzing, criticizing, and proposing reforms for these institutions. In a similar sense, I think we would be inclined to say that trade law also needs a theory of justice. The international trade law system (for example, the WTO) involves significant resources, and decisions about how those resources are allocated. So, as with tax law or health care policy, we intuitively want to know, is it fair? However, to go beyond this immediate intuitive level and answer in a more rigorous way, we need to consider a few elements of political theory: what does justice involve? What does a theory of justice do? One way to understand the idea of justice is as Through their decisions, social institutions produce some kind of social order, and we have many tools and disciplines with which to evaluate this order. The task of justice, in particular, is to ask whether these social decisions and institutional outcomes are right and consistent with a community's core values. How do we know if the inquiry of justice is relevant to a given situation? One way is to look at whether the situation involves public decision making about social goods. When people use social institutions to make decisions allocating social goods, this is the domain of justice. The decisions which these institutions make, and their method of decision making, are evaluated according to principles of justice. Trade law is one such social system, part of what Rawls calls the basic structure--that set of major institutions, including economic arrangements, which together distribute fundamental rights and duties and determine the division of the advantages from social cooperation. If we think about the scope of WTO law, for example, we can see that trade law involves numerous decisions allocating social goods such as wealth, economic opportunity, trade-related knowledge, preferences, market access, etc. To say that trade law does not need a theory of justice suggests that we need not consider the normative implications of this allocative system, that the question of fairness is irrelevant. We don't say that about any other social institution--why would we say that about trade law? II. OBJECTIONS TO THE APPLICATION OF THEORIES OF JUSTICE TO TRADE LAW There are several kinds of objections one can make to the idea of justice as applied to international institutions. …

Advertising to Communicate Public Policy: Applying Lessons from Federal Tax Law

The admittedly unusual example of advertising to raise the likelihood that federal tax policies meet their objectives offers a starting point for exploring questions about the appropriateness and effectiveness of advertising with government dollars. Advertising paid for with public money, designed for communication concerning a public policy, may be the way to attain the objectives of that policy, it is argued here, depending on the task, the audience, and the acceptability of the message.

Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes

This Article presents the first empirical study of the domestic jurisdictional competition for trust funds. To allow donors to exploit a loophole in the federal estate tax, since 1986 a host of states have abolished the Rule Against Perpetuities as applied to interests in trust. To allow individuals to shield assets from creditors, since 1997 a handful of states have validated self-settled asset protection trusts. Based on reports to federal banking authorities, we find that, on average, through 2003 a state's abolition of the Rule increased its reported trust assets by $6 billion (a 20% increase) and increased its average trust account size by $200,000. By contrast, our assessment of validating self-settled asset protection trusts yielded indeterminate results. Our perpetuities findings imply that roughly $100 billion in trust funds have moved to take advantage of the abolition of the Rule. Interestingly, states that levied an income tax on trust funds attracted from out of state experienced no observable increase in trust business after abolishing the Rule. Because this finding implies that abolishing the Rule does not directly increase a state's tax revenue, it bears on the study of jurisdictional competition. In spite of the lack of direct tax revenue from attracting trust business, the jurisdictional competition for trust funds is patently real and intense. Our findings also speak to unresolved issues of policy concerning state property law and federal tax law.

State Law: The Foundation for Federal Tax Law

To determine if property exists for purposes of federal income tax law, a bifurcated analysis is needed because state law creates the legal rights and interest associated with property, but federal income tax law determines if the rights or interest are sufficient to create property for a specific tax purpose. Recent court cases and Internal Revenue Service rulings are examined to clarify: • What legal rights and interest are held by a taxpayer under state law, and • Whether those rights and interest are property for purposes of federal income tax law. Although state law provides the foundation for federal income tax law, B. Bittker has noted that its consideration “rarely rises to conscious level.” This article reviews the interrelationship of state and federal law in defining property rights and interest—and, in doing so, creates the conscious awareness needed for effective tax planning.

How fair? Changes in federal income taxation and the distribution of income, 1978 to 1998

In this paper, we determine how tax law and income distribution changes have separately contributed to the changes in tax progressivity over time, and also how a specific pre-tax distribution of income affects the equalizing ability of a given tax change. We use information from the Current Population Survey for years that follow immediately after significant tax law changes or after the full enactment of these changes to measure the effect of income taxes on income distribution for selected years over the period 1978 to 1998. We find that, even when account is taken of the induced effect of changes in federal income tax laws on pre-tax income, the individual income tax structure has been less successful in equalizing after-tax income since the 1980s and into the early 1990s. We also find that a given tax law's equalizing effect on the distribution of income is significantly affected by the pre-tax distribution of income. © 2005 by the Association for Public Policy Analysis and Management.

Capital-Intensive Privatization

The City of Auburn, Alabama, a university city of 45,000, privatized its wastewater treatment facilities in the early 1980s. At the time, the city was faced with outdated wastewater facilities that were built in the 1950s. Overflows from the many pump stations into local creeks were common occurrences. Federal financial assistance was several years away because of Auburn’s lower priority on the funding list, and interest rates were very high for municipal bond issues. Federal tax law favored private investment in public facilities so the city choose a private company to build, own, and operate two new treatment plants. In 2001, the city purchased the treatment facilities from the private owner because it needed to expand treatment capacity and build a major new sewer line. This article presents the case study of the privatization and subsequent return to public ownership of a capital-intensive privatization project of the early 1980s.

Ask a Lawyer: Are LCCEs Exempt from Income Taxes?

Lamaze International Certified Childbirth Educators (LCCEs) may incorporate as tax-exempt organizations under the federal tax law if they meet all of the outlined requirements. They may then be considered exempt from income taxes for the purpose of any law that refers to tax-exempt organizations.

Are LCCEs Exempt from Income Taxes?

Lamaze International Certified Childbirth Educators (LCCEs) may incorporate as tax-exempt organizations under the federal tax law if they meet all of the outlined requirements. They may then be considered exempt from income taxes for the purpose of any law that refers to tax-exempt organizations.

Commentary on Brudney and Ferrell

Brudney and Ferrell's excellent article makes an important contribution to the ongoing debate over the legitimacy of corporate charity. They are concerned that corporate managers donate money to charities without shareholder consent, and they propose that federal tax law only allow a corporation to deduct charitable donations if its shareholders choose the recipients. This Comment is divided into two Parts. Part I discusses the practicality of implementing this proposal and possible collateral effects. Part II discusses problems that Brudney and Ferrell identify with unfettered management discretion in charitable giving, the seriousness of these problems, and whether they could better be addressed in other ways.

Federal and State Income Taxation of Indian Gaming Revenues

383 TAXATION IN INDIAN COUNTRY is exceptionally complex because it brings into collision the amorphous and often inconsistent legal doctrine of federal Indian law with substantively complex state and federal tax laws. Successful Indian gaming, because it involves substantial sums of money, naturally arouses the interest of federal and state tax authorities. The history of taxation in Indian Country paints a sad and consistent picture of federal1 and state2 tax authorities overstepping their lawful taxing powers. These tax officials have tended to “tax

A Transcontinental 'A' Train? Foreign Mergers Under Section 368(a)(1)(A)

In this article, I address the tax consequences to U.S. investors from mergers between foreign corporations. The combination of the increasingly international capital markets and the global movement has highlighted the inequity of Treasury's current stance to deny such transactions the benefit of tax-free reorganization status under Section 368(a)(1)(A) of the Internal Revenue Code. The article argues that permitting foreign mergers to qualify as A reorganizations is faithful to the original intent of 368(a)(1)(A) and uses this historical perspective to provide a framework for developing a federal tax law definition of merger or consolidation. The article concludes that broadly applying such a tax-centered conception of the phrase can also help resolve the inequity between foreign and domestic transactions.

The Federal Tax Implications of Bush v. Gore

About the only thing that all of the Justices of the Supreme Court agreed upon in the recent Bush v. Gore decision was the general principle that federal courts should defer to state courts on matters of state law. As Justice Breyer put it in his dissent, the Justices only differed as to whether case [was] one of the few in which we may lay that fundamental principle aside. But federal courts regularly lay aside that fundamental principle in tax cases. Where the Internal Revenue Code expressly incorporates state law, federal courts in a tax proceeding frequently must decide how much weight to give to a state court ruling on state law. In 1967, the Court relied on the Erie doctrine in Commissioner v. Estate of Bosch in requiring federal courts to give proper regard to state court decisions. Although in theory the proper regard standard appears consistent with the Bush v. Gore deference principle, this Article shows that in practice the federal courts instead have given no regard to state court decisions in concluding in over one-half of the cases applying Bosch over the past thirty-four years that the state court judge had misapplied state law. The enormous interest generated by the Bush v. Gore decision makes this a particularly propitious time to re-visit this nettlesome question of federal tax law. The Article argues that the federal courts should return to the Erie roots of the proper regard test in order to give effect to the Bush v. Gore deference principle. If this approach is followed, the Bush v. Gore decision will leave a more lasting imprint in the federal tax law than in constitutional or election law.

Synthetic Leases: Structured Finance, Financial Accounting and Tax Ownership

The term is in vogue in the world of commercial real estate finance. In a lease transaction, money is borrowed based on the financial strength of a tenant and on that tenant's agreement to pay rent. The lender expects the debt to be serviced from the rental obligation of the tenant rather than from the financial resources of the nominal owner and borrower. The lease is synthetic insofar as it is designed to achieve a blended treatment: the tenant reports it as an operating lease for financial accounting purposes but as a mortgage for federal income tax purposes. This article explains lease transactions in the broader context of asset securitization and structured finance and contrasts the treatment of leases under financial accounting standards, mortgage law and federal income tax law. Although leases have long been treated differently for financial accounting purposes and tax law purposes, the article takes the position that the present divergence is too great. It takes the position that what needs fixing is not the tax law but the standards of the Financial Accounting Standards Board (FASB). It argues that FASB should eliminate the sharp distinction between sale-leaseback transactions and transactions in which an SPE acquires title from a third party. In particular, it argues that FASB should require balance sheet disclosure when the sine qua non of a transaction is an ex ante agreement that the tenant, not the landlord, will report that it is the substantive owner of an encumbered asset for federal income tax purposes.

Tax Transitions, Opportunistic Retroactivity, and the Benefits of Government Precommitment

What if the current federal income tax laws were repealed and replaced with a simple flat tax? What if the entire Internal Revenue Code (with its graduated rates and countless deductions, exclusions, and credits) were scuttled in favor of a broad-based consumption tax? Only a few years ago, such proposals would have seemed radical and extremely unlikely to be adopted. But times are changing. Calls for a drastic overhaul of the Internal Revenue Code have become commonplace, even at the highest levels in the tax-policy community.3 In addition, proposals that would replace the income tax with a flat-rate broad-based consumption tax have received substantial bipartisan support in Congress.4 And many

Government Institutional Effects on the Value of Seasonal Climate Forecasts

AbstractThe impact of government institutions on the value of improved climate forecasts is examined. Results suggest that crop insurance and earned income tax credit have little effect on the expected change in after‐tax cash flows. Federal tax law has only a modest influence. As expected, the disaster program decreases the value of improved climate forecasts. With no price changes, the farm program lowers the value of the forecasts because of the acreage reduction provisions. With at least some price decreases, the farm program increases the value of climate forecasts. Here, the price supports override the acreage reduction provisions.

Federal tax effects on the financial attractiveness of renewable versus conventional power plants

In this paper, we examine the effects of federal tax laws on the financial attractiveness of seven renewable and four conventional electric power generating technologies adopted by investor owned utilities (IOUs) and non-utility electricity generators (NUGs). The results show that federal income tax laws applicable to renewable generating technologies generally provide very attractive financial incentives for the adoption of these technologies by IOUs and NUGs. If an IOU or NUG is subject to the alternative minimum tax, however, it may not be able to take full advantage of these financial incentives.

Federal tax incentives and disincentives for the adoption of wood-fuel electric-generating technologies

In this paper, we estimate the effects of current federaltax policy on the financial criteria that investor-owned electric utilities (IOUs) and non-utility electricity generators (NUGs) use to evaluate wood-fuel electric-generating technologies, distinguishing between dedicated-plantation and wood-waste fuels. Accelerated tax depreciation, the 1·5 ¢/kWh production tax credit for the dedicated-plantation technology, and the alternative minimum tax are the most important tax provisions. The results indicate that federal tax laws have significantly different effects on the evaluation criteria, depending on the plant's ownership (IOU vs NUG) and type of fuel (dedicated-plantation vs wood-waste).