Federal Tax Research Articles

Partnership Distributions: Options for Reform

The rise of new forms of limited liability business entities, coupled with changes in the federal tax rules for classifying such entities, has precipitated an influx of businesses that are treated as partnerships for federal tax purposes. Some commentators welcome what they perceive as a process of de facto integration that promises eventually to make an elective regime of pass-through taxation available for all nonpublicly-traded businesses. To the extent that the partnership model, as currently embodied in Subchapter K, represents a coherent and well-functioning body of law, such a sanguine view may be justified. However, as the preliminary work of the American Law Institute (ALI) project on pass-through entities suggests, the intricate provisions of Subchapter K may be "dysfunctional" in important respects.Indeed, Subchapter K may have reached an important turning point. The 1954 Code drafters stressed simplicity and flexibility while allowing partners considerable latitude in allocating tax benefits and burdens among themselves. With the benefit of hindsight, this tolerant attitude toward shifting tax consequences among partners appears to undermine broader tax policy goals. Concern about the flexibility of partnership taxation-particularly the ease of entry and exit-has led some partnership reformers to veer in the opposite direction. Recent legislative attempts to confine the broad nonrecognition policy of section 72 1-especially with respect to contributions of property with built-in gain or loss, disguised sales, and distributions of previously contributed property-signal Congressional ambivalence about Subchapter K's unrivaled flexibility.

Estate and Gift Tax Effects of Selling a Remainder: Have D'Ambrosio, Wheeler and Magnin Changed the Rules?

For over two-thirds of a century, federal estate tax law has expressly provided that property transferred by a decedent during his lifetime will nonetheless be subject to estate tax if he retains the right to the property's income for the remainder of his life. This rule-now embodied in section 2036 of the Internal Revenue Code-reflects Congress's belief that such transfers are inherently testamentary: the transferor continues to enjoy the "transferred" property for the rest of his life, while his beneficiary obtains the property only upon the transferor's death.During the same period, "bona fide sale[s] for an adequate and full consideration" have been excluded from the operation of this provision. The rationale for this exclusion is that a transfer of property for which the transferor receives full value does not diminish the size of his estate, and thus there is no need to subject the transferred property to estate tax.

Taxation of Electronic Commerce: Federal Income Tax Issues in the Establishment of a Software Operation in a Tax Haven

The advent of the Internet and other electronic means of conducting commercial transactions has created a new galaxy of ways to structure business operations and a concomitant range of novel tax issues. It is commonly said that, because of the diminished need for a vendor to have a physical presence in the country of the customer, one of the likely effects of electronic commerce will be to shift revenues away from source jurisdictions and towards residence jurisdictions. In fact, this may be only partially true. Income may be shifted away from the customers' countries all right, but into a tax haven jurisdiction rather than into the enterprise's home jurisdiction. A major issue for enterprises that use the Internet and their residence tax jurisdictions, therefore, will be whether controlled foreign corporation or similar legislation will operate to impose tax on any revenues that are shifted in this manner.The purpose of this paper is to consider how a hypothetical business operation structured to operate in a tax haven might be treated under United States federal income tax law, both under provisions taxing income at the source and under provisions taxing U.S. persons on tax haven income of foreign corporations, and then to reflect on what, if anything, this tells us about the need for change. Because the Internal Revenue Service has issued a regulation discussed below, specifically characterizing income derived from transactions in computer software (and not other types of transactions in electronic commerce), the paper will focus on a company delivering software over the Internet; but many of the issues presented will arise in the case of other Internet providers.

Tax Consequences of Assigning Life Insurance-Time For Another Look

Copyright © 1999 by Douglas A. Kahn and Lawrence W. Waggoner.The Taxpayer Relief Act of 1997 furnishes the courts and the Internal Revenue Service an opportunity to close certain loopholes in the federal tax consequences of assigning life insurance. About twenty years ago, we published an article arguing that the tax consequences of assigning life insurance affords taxpayers unwarranted opportunities for tax avoidance. Since then, developments in the case law and Internal Revenue Service rulings have broadened the loopholes. In this update of our article, we show how the new tax law supports our original position.The most litigated estate tax issue concerning life insurance is whether the proceeds are includible in the insured's gross estate. This question is usually governed by section 2042 of the Internal Revenue Code of 1986 (Code), the estate tax provision specifically dealing with life insurance. To be included under section 2042, the insured must "possess at his death any of the incidents of ownership [in the policy], exercisable either alone or in conjunction with any other person," or the proceeds must be "receivable by the [insured's] executor."

Back to the Future Interest: The Origin and Questionable Legal Basis of the Use of Crummey Withdrawal Powers to Obtain the Federal Gift Tax Annual Exclusion

Although the future of the estate tax is uncertain, the federal gift tax and the federal gift tax annual exclusion survived recent Congressional action. In fact, recent changes to the Internal Revenue Code may increase the use of the annual exclusion in the short term.The federal gift tax annual exclusion allows donors to give $11,000 per year to an unlimited number of donees free of gift tax. The exclusion is unavailable for gifts of “future interests,” including most gifts in trust. In order to make a gift in trust that fully qualifies for the annual exclusion, donees are frequently given temporary powers – called “Crummey powers” – to withdraw the gift to the trust.Crummey powers are based on unjustifiable analogies to the federal income tax. In fact, Crummey powers are inconsistent with the language of the Internal Revenue Code, the Treasury Department’s regulations and United States Supreme Court precedent concerning the annual exclusion. Moreover, Crummey powers defeat the legislative intent behind the annual exclusion.The law has become muddled in this area due to missteps by the IRS. Despite the potential for abuse, the IRS has never contested the fundamental validity of Crummey powers. Instead, the IRS accepted the basic premise behind Crummey powers and litigated side issues. The IRS’s agreement on the basic premises, however, precluded its success on the side issues.The Treasury Department or Congress may effect an abrogation of Crummey powers. In the current political climate, however, they are unlikely to do so. Unless they do, the IRS will likely be forced to continue to accept the sham it sanctioned when it acquiesced in Crummey v. Commissioner.

The Good, the Bad, and the Ugly in Post-Drye Tax Lien Analysis

The general federal tax lien attaches to "all property and rights to property, whether real or personal" which belong to the delinquent taxpayer. In most cases in which the IRS takes enforced collection action based on its lien, there is little doubt that the property the IRS is pursuing constitutes "property [or] rights to property." The easiest cases, of course, are those in which the tax delinquent is the fee simple owner of realty or personalty. The IRS typically goes after such assets first because the tax lien obviously attaches to them and they are relatively easy to convert into cash to pay the liability. If such assets are unavailable or have been exhausted, the IRS may pursue items involving less than fee simple ownership. As it does so, the question may arise whether the items constitute property or property rights. The Supreme Court has repeatedly stressed that the language of section 6321 "is broad and reveals on its face that Congress meant to reach every interest in property a taxpayer might have. Despite this expansive construction, controversies as to the reach of the general lien are perennial. Whether a given interest constitutes "property [or] rights to property" for section 6321 purposes has been litigated in hundreds of cases.The most challenging of these controversies involve one or more of three situations. First, the taxpayer's interest may not yet have ripened (and may never ripen) into full possession or control of the underlying property. A continuum exists from mere hope, to expectancy, to contingent interest, to present possessory interest. Second, the taxpayer's interest may be shared with others. It may be undivided not individual, joint not single, or fractional. Third, restrictions may exist, under the instrument governing the property or under state law, on the taxpayer's ability to use or dispose of the property or on the ability of the taxpayer's creditors to reach the property or the taxpayer's interest in it. The more the taxpayer's interest diverges from fee simple ownership, because of one or more of these situations, the more likely is an argument that the tax lien does not attach to the interest because it is not "property [or] rights to property."

One Flesh, Two Taxpayers: A New Approach to Marriage and Wealth Transfer Taxation

Marriage is an excellent estate planning strategy. Generally speaking one spouse can transfer assets to the other during life and at death without adverse estate or gift tax consequences. This has two principal economic advantages. First the tax-free status of marital transfers allows a comparatively wealthy husband or wife to shift assets to his or her less wealthy spouse so that each may take maximum advantage of all available tax deductions, exemptions, exclusions, special valuation rules, credits and lower tax rates. Second the taxfree status of marital transfers allows a married couple to postpone the payment of estate tax until the death of the second spouse. For these reasons property transfers between spouses form the cornerstone of the vast majority of married couples’ estate plans.In permitting tax-free transfers during life and at death, the federal wealth transfer tax system treats a married couple as a single taxpayer. Just as marriage causes a man and woman to “become one flesh” for biblical purposes, it causes them to become one taxpayer for federal estate and gift tax purposes. The tax law embraces a “one flesh, one taxpayer” approach to marital wealth transfers

Investing in Infants: the Lasting Effects of Cash Transfers to New Families

Abstract We provide new evidence that cash transfers following the birth of a first child can have large and long-lasting effects on that child’s outcomes. We take advantage of the January 1 birthdate cutoff for U.S. child-related tax benefits, which results in families of otherwise similar children receiving substantially different refunds during the first year of life. For the average low-income single-child family in our sample, this difference amounts to roughly ${\$}$1,300, or 10% of income. Using the universe of administrative federal tax data in selected years, we show that this transfer in infancy increases young adult earnings by at least 1%–2%, with larger effects for males. These effects show up at earlier ages in terms of improved math and reading test scores and a higher likelihood of high-school graduation. The observed effects on shorter-run parental outcomes suggest that additional liquidity during the critical window following the birth of a first child leads to persistent increases in family income that likely contribute to the downstream effects on children’s outcomes. The longer-term effects on child earnings alone are large enough that the transfer pays for itself through subsequent increases in federal income tax revenue.

ОЦЕНКА ЭФФЕКТИВНОСТИ КОНТРОЛЬНОЙ ДЕЯТЕЛЬНОСТИ НАЛОГОВЫХ ОРГАНОВ

For the timely execution of tax obligations, tax authorities create trusting relations with taxpayers, providing them with comfortable conditions and a high level of quality of services provided for the timely fulfillment of obligations. The article considers: the composition and structure of tax authorities; indicators for assessing and planning the effectiveness of the tax authorities of Russia, to which the Federal Tax Service refers. Special attention is paid to the analysis of tax revenues to the consolidated budget, their collection and debt.

Horizontal and Vertical Equity in Taxation as Constitutional Principles: Germany and the United States Contrasted

Germany's Basic Law assigns primary jurisdiction over constitutional issues to Germany's Constitutional Court and requires other courts to suspend their proceedings and refer constitutional issues that are critical to resolution of any pending case to the Constitutional Court. In the United States, the Supreme Court has broad appellate and, in some cases, original jurisdiction; and its authority to review legislative action for conflict [*262] with the Constitution became clear early in the Court's history. Unlike Germany, however, lower courts also have jurisdiction to decide constitutional issues, subject of course to eventual Supreme Court review.While the U.S. Supreme Court has resolved many tax controversies, with taxpayers raising constitutional questions in a number of cases addressing questions of federal tax law, only infrequently has the Court found a federal taxing statute to violate a constitutionally protected right or privilege. Rarely has the Supreme Court looked to the Constitution and decided that a federal tax law violated the Constitution. Never has the Supreme Court held a federal tax law to conflict with the Bill of Rights. Many more decisions involve challenges to state tax statutes as in conflict with the U.S. Constitution. Often those state law cases combine claims under several provisions of the Constitution, including the Commerce Clause, Due Process, and Equal Protection. In reviewing state tax [*263] statutes for compliance with constitutional standards, the Court consistently has applied its "rational basis test," its least intrusive standard of review. Under that test, a statute is valid so long as the legislature has a rational basis for its enactment. The decisions predominantly uphold the state taxing statute. Occasionally, the Court limits states' taxing power or their tax collection authority over non- residents.

Territorial vs. Worldwide International Tax Systems: Which is Better for the U.S.

This article was presented at the 2006 Annual Symposium on International Taxation held at the University of Florida Levin College of Law Graduate Tax Program.The Report of the President’s Advisory Panel on Federal Tax Reform, entitled “Simple, Fair, and Pro-Growth: Proposals to Fix America’s Tax System,” was released in November 2005. One of the issues addressed in the Panel Report was whether the U.S. should shift from its current international tax system (taxing the worldwide income of its nationals with a credit for foreign income taxes) to a territorial system (exemption of foreign branch business income and dividends from foreign subsidiaries out of business income). The Panel opted for the territorial system. The report devoted only about twelve pages to the subject, but its recommendation has reignited interest in a subject which has recurred with some regularity over the past decade.

Will U.S. Investments Go Abroad in a Territorial Tax: A Critique of the President's Advisory Panel on Tax Reform

This article was presented at the 2006 Annual Symposium on International Taxation at the University of Florida Levin College of Law Graduate Tax Program.The Report of the President's Advisory Panel on Federal Tax Reform (the "Report") recommends the U.S. adopt a territorial tax system that would exclude income earned by U.S. taxpayers actively conducting foreign businesses. This exclusion would also apply to dividends received from controlled foreign corporations to the extent such dividends were attributable to the corporation's conduct of active foreign businesses. The Report justifies this recommendation by stating that a territorial system is simpler than the current global approach employed by the U.S. and that a territorial tax will improve efficiency. In an accompanying article, Professor McDaniel has demonstrated that simplicity cannot be achieved under a territorial or global system. Under either system, the U.S. will have to address source issues, transfer pricing issues and IRC Section 367 concerns.

Transparency in Private Collection of Federal Taxes

Most federal taxes are collected from taxpayers by business entities, held in a public trust for the United States, and then paid over to the Internal Revenue Service (the IRS). While the vast majority of business entities pay over the taxes held in trust in a timely and appropriate manner, a sizeable amount, in dollar terms, does not get paid. The amount of unpaid “collected” taxes in 2008 created a $58 billion tax gap item.Disclosure law governing federal taxes defaults to non-disclosure for most tax returns. This general rule of non-disclosure governs the returns reporting the taxes collected by business entities even though the information on these returns is information concerning a public trust. This article analyzes the federal tax disclosure laws and concludes that the amount of taxes collected on behalf of the United States and the amount of these collected taxes paid over to the IRS should be disclosed. Rather than coming under the general rule of non-disclosure which applies to income tax returns and other returns reporting the liability of an individual or entity for the payment of taxes, these returns should be treated like the returns of pension plans, which are open for the public to see.In addition to approaching the issue from the perspective of disclosure policy, the article also looks at the collection policy issues presented by the disclosure of this information. For the same policy reasons that Congress has decided compliance is enhanced by the disclosure of pension plans and the returns of exempt organizations, the article concludes that compliance would be enhanced by this proposal and the tax gap reduced.

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.

The 'Invasion of the Yellow Race': Anti-Asian Discourse in Early Twentieth Century Niagara

In the early twentieth century, Chinese entrepreneurs in Niagara were subjected to racist attacks in the media, experienced discriminatory treatment from local authorities, and even became the targets of mob violence in downtown St. Catharines. Using newspaper accounts from the period, this essay illustrates how late Victorian moral reform ideologies influenced anti-Asian discourse and behaviour. ‘Foreigners’ were seen to threaten the virtue of the nation’s women and girls, and by extension, the purity of the Anglo-Saxon race. In March 1918, an inflammatory front-page editorial in Grimsby’s weekly newspaper urged citizens to stop a Chinese restaurant from opening in their community, using provocative rhetoric to incite moral panic about Asians. Nativist government measures such as the federal head tax and provincial legislation prohibiting white women from working in Chinese restaurants, attempted to shield white Canadians from Chinese entrepreneurs by curbing their economic viability. Despite the xenophobia, Chinese immigrants embraced western culture and melded into community life through everyday encounters with Niagara residents in public spaces like restaurants, laundries, and grocers, contradicting a narrative positioning them as undesirable malfeasants.

Slouching Towards a Consumption Tax and the End of Retirement Income Security

I presented a version of this paper at a 2003 symposium on public policy for retirement security at the Ohio State Moritz College of Law.In 2003, the Bush Administration proposed two ideas that I (and others) feared would undermine the retirement income security of millions of Americans. The first idea was to create two new tax-favored personal savings vehicles: the retirement savings account and the lifetime savings account. These tax-benefited accounts, which would have existed outside the employer-based retirement system and replace individual retirement accounts, would each have permitted annual contributions of $7,500 each, or $15,000 in the aggregate. (An individual could also have set up lifetime savings accounts for family members without earned income, into which he could contribute $7,500 annually.) The contributions were to be made on an after-tax basis, but the earnings would be exempt from income tax, a schemata based on the Roth IRA. The RSA would impose penalties on pre-retirement withdrawals; the LSA would not. These ideas did not find favor in the Congress and were generally opposed by the business community, organized labor, and liberal think tanks, for reasons I will summarize shortly. Nevertheless, the White House and members of Congress have introduced similar proposals in 2004, 2005, 2006, 2007, and 2008, and the President’s Advisory Panel on Federal Tax Reform adopted retirement and lifetime savings accounts as part of its blueprint for reform, which was released in late 2005. Thus, the idea of these new accounts retains political and intellectual currency, like the proverbial bad nickel, and they, or variations on them, are almost certainly to survive the end of the Bush presidency.

Charity in the 21st Century: Trending Toward Decay

The turn of the century seemed to bring with it a sharply critical focus on charity.(FN1) Under federal tax law, a charity includes organizations that are "organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes." This single phrase provides a standard not just for tax exemption for over 1.2 million organizations (which are diverse in purpose, size, function, complexity, and effectiveness) but also access to several tax and nontax preferences, including eligibility to receive tax deductible contributions (for income, estate, and gift tax purposes),(FN2) access to tax-exempt financing,(FN3) State property tax exemptions,(FN4) and regulatory relief, among other benefits.(FN5) The concerns about charities surfaced largely through press reports and are legion: spending of earmarked contributions for non-earmarked purposes; excess compensation to organization insiders; mission drift -- deliberate, or aided by faulty corporate governance; acceptance of property contributions when donors or others are the principal beneficiaries; participation in illicit tax shelter transactions; spending for non-charitable purposes; accumulations of income; failure to provide charitable services; use of the charitable form for non-charitable purposes; questionable investment practices; participation in political campaigns; and self-dealing transactions, to name a few.(FN6) The response to ongoing scandals by the Internal Revenue Service (IRS) and the Congress was mixed. As the scandals unfolded, the IRS continually pointed to abuses and the need to address them,(FN7) but also asserted that the charitable sector is "compliant," notwithstanding a minimal examination rate.(FN8) As part of its enforcement efforts, the IRS completed an ambitious overhaul of the annual information return charitable (and other tax-exempt) organizations file each year (the Form 990);(FN9) undertook intensive studies on the two largest segments of the charitable sector: hospitals,(FN10) and colleges and universities;(FN11) made an inquiry into executive compensation practices;(FN12) and raised new questions about governance.(FN13) The IRS's continuing actions indicate, at a minimum, suspicion that the charitable sector indeed has large pockets of noncompliance and that oversight, or the perception of it, is necessary. But the IRS can only do so much. Meaningful change of any underlying weaknesses in the tax law of charities ultimately must come from Congress.

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.

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