Two Tax Profs are presenting works-in-progress today at the Midwest Junior Faculty Works-in-Progress Workshop at Washington University.

Bradley T. Borden (Washburn), A Win-Win Proposal for Analyzing Profits-Only Partnership Interests (Including Carried Interests):

The proper tax treatment of profits-only partnership interests is an unsolved aspect of tax law. The problem has manifested itself recently in the debate over the proper tax treatment of carried interests, a subset of profits-only partnership interests. Current law taxes holders of profits-only partnership interests based upon the character of income determined at the partnership level. Therefore, a partner who contributes only services to a partnership may be taxed at favorable long-term capital gains rates. One group of commentators recognizes such treatment as inequitable and recommends that at least a portion of partnership income allocated to holders of profits-only partnership interests should be taxed as compensation. To obtain the desired compensation result, commentators and lawmakers generally propose disaggregating partnerships (i.e., changing the character of income as it flows from the partnership to service-providing partners). Partnership disaggregation threatens the partnership tax regime, finds little support in partnership tax policy, and potentially disrupts the application of other tax law provisions. The Article suggests that a better method for analyzing profits-only partnership interests is disregarding partnerships that do not come within a policy-based definition of tax partnership. Many arrangements that purport to be tax partnerships do not, or should not, come within the federal definition of tax partnership. The existing definition of tax partnership is, however, antiquated, so some arrangements may fall within the definition, even though policy does not support taxing them as partnerships. Intellectual resources should begin to focus on determining whether a purported arrangement should be disregarded and developing a policy-based definition of tax partnership that would better regulate the application of the partnership tax rules. Analytical methods that properly define tax partnerships will prevent nonpartners from converting compensation income to capital gain and resolve problems raised by carried interests. Partnership disregard will also help preserve the integrity of partnership tax law, creating a win-win solution to an otherwise divisive tax problem.

William A. Drennan (Southern Illinois), A Penalty System to Promote Fair Taxation:

Our current income tax system encourages the rich to use their tax returns as a mere first offer. The IRS accepts those first offers over 97% of the time, and considers making a counter-offer, through an audit, less than 3% of the time. The few who are caught on audit rarely pay a penalty. As a result, the rich avoid paying their fair share of taxes, and the working class, who must pay taxes through withholding, are cheated. A crisis is looming. Taxpayers are losing confidence in our system. This Article proposes the repeal of the existing accuracy-related penalty system and the creation of a new failure-to-pay penalty, to encourage accurate tax filing and make our tax system more just.

For a list of the nontax presenters and their papers, see below the fold:

• Matt Bodie (Saint Louis), Arrow’s Theorem and Shareholder Voting Rights
• Emily Hughes (Washington University), Mitigation Specialists and Capital Defendants’ Families
• Antony Page (Indiana-Indianapolis), Unconscious Bias and the Limits of Director Independence
• Thaddeus Pope (Widener), Multi-institutional Health Care Ethics Committees