logo

Association of American Law Schools

a surfer in front of the malibu pier on a sunny day

TaxProf Blog

Paul L. Caron
Dean
Pepperdine Caruso
School of Law

headshot
Ad: BlueJ Better Tax Answers. -Accomplish hours of research in seconds -Instantly draft high-quality communications -Verify answers using a library of trusted tax content. Learn more
  • Paul Caron

    Cafeteria Worker Grabs $2m Tax Refund from IRS by Claiming to be an Hawaiian Princess

    Wednesday, April 28, 2004

    A cafeteria worker in Pennsylvania with less than $5,000 of annual income managed to get a $2.1 million tax refund check from the IRS. She used the social security number of a real Hawaiian princess (Abigail Kawananakoa) to get a refund check from money the princess deposited to cover her own estimated taxes. An IRS spokesperson said “an erroneous tax refund of this magnitude is very rare.” Her attorneys claimed she was suffering from an “irrational insistence upon an identity that is not her own.”

    For press reports, see here, here, here, here, here, here, and here. Kudos to Jack Bogdnaski for flagging this great story.

  • Paul Caron

    Baillif on Sales Price Adjustments

    Wednesday, April 28, 2004

    Michael Baillif (Ernst & Young) has posted Sales Price Adjustments: The Continuing Conundrum on SSRN. Here is the abstract:

    The identification and treatment of sales price adjustments are among the most wide-ranging, and under-analyzed subjects in the tax law. The consequences of such classification can be substantial and far-reaching. Generally speaking, the question of whether sales allowances, rebates, refunds, trade or other discounts, or other inducements to buy (referred to collectively as “sales price adjustments”) are being provided by the seller, will govern the timing, character and treatment by the seller with respect to such adjustments. They also may determine the ability of the seller to recover over time the amount of the transfer through depreciation or amortization deductions. From the perspective of the purchaser, if a sales price adjustment is received, the purchaser would not recognize this amount in current income, but instead would reduce the basis in its newly acquired property or the cost of its assets held in inventory.

    The proper parameters of the nature and scope of sales price adjustments have long been a matter of contention between taxpayers and the Service, and have represented a source of substantial confusion. This area is sufficiently broad that a single article cannot do it justice. As a result, this article is devoted to an examination of the sales price adjustment inquiry from the perspective of the seller. This article also considers two other intriguing issues involving incentives from nonsellers: inducements furnished by third parties with a business interest in the transaction, and inducements taking the form of nonshareholder contributions to capital under section 118.

  • Paul Caron

    SOI Releases 2000 Foreign Sales Corporation Data

    Wednesday, April 28, 2004

    The just-released Statistics of Income Bulletin (Winter 2003-04) includes Foreign Sales Corporations, 2000. Here is the abstract:

    Foreign Sales Corporations (FSC’s) filed 4,200 income tax returns for Tax Year 2000. FSC’s are foreign corporations, created by “parent” shareholders (mostly corporations). Generally, the FSC mechanism exempts a portion of income derived from the export of U.S. manufactured merchandise and certain services from U.S. income taxation.

    Overall measures of FSC economic activity and earnings can be highlighted using Tax Year 2000 statistics. For 2000, the gross receipts of FSC’s and related suppliers, a broad measure of economic activity, was $349.0 billion, up from $285.9 billion for 1996, the last year for which comparable statistics were compiled. After subtracting costs of goods sold, and allocations of receipts using pricing rules to FSC’s and their related suppliers, FSC’s generated $43.9 billion of “total income.” Of this amount, $16.0 billion were subject to U.S. tax as nonexempt income, while $27.9 billion were exempt from regular U.S. income taxation. Following other adjustments, income subject to U.S. tax, the tax base, was $6.7 billion, which generated a total U.S. income tax of $2.3 billion. In 2000, FSC’s distributed $14.7 billion to their parent shareholders, mostly U.S. corporations. These distributions reflected current and accumulated (i.e., prior-year) earnings and profits.

    For three related Excel tables of data, see here. For more statistics on FSC’s, see here.

    Over the coming week, TaxProf Blog will summarize the remaining Featured Articles and Data Releases in the latest SOI and provide links to the full reports and accompanying tables and statistics.

  • Paul Caron

    IRS Disclosure of Individual Tax Return Information

    Tuesday, April 27, 2004

    The IRS recently published its annual report on the number of times it discloses individual income tax return information. For 2003, the IRS disclosed this information 3.7 billion times. Since only 125 million tax returns are filed each year, that works out to 30 disclosures per return. (The 2003 figures represent a reduction from the 4.1 billion disclosures of individual tax return information in 2002.) Jim Maule (Villanova) has a nice discussion on his blog of the issues raised by these disclosures.

  • Paul Caron

    Brennen on Examining Race and Tax Exempt Law in Teaching and Scholarship

    Tuesday, April 27, 2004

    David Brennen (Mercer), the co-author of a new casebook on The Tax Law of Charities and Other Exempt Organizations, has posted Race and Equality Across the Law School Curriculum: Tax Exempt Law on SSRN. Here is the abstract:

    Race and Equality Across the Law School Curriculum: Tax Exempt Law chronicles the possibilities for racial examinations of tax exempt law in the law school environment, either through teaching or scholarship. The Article, prepared in conjunction with Association of American law School’s Summer 2004 “Racial Justice” professional development conference, relates the racial study of tax exempt law to the broader critical race theory movement in law generally. Thus, the Article highlights critical race theory’s initial focus on constitutional law issues and traces its development to a focus on more neutral-looking areas of law such as tax law. The Article then outlines the basic scholarship concerning tax law generally as it relates to race, demonstrating how this general tax and race scholarship has effectively exposed racial bias in the federal tax imposed on wages and income of individuals. Finally, the Article outlines a laundry list of race issues in tax exempt law that might also contribute to improved notions of justice and fairness in the law. For example, the Article discusses the public policy limitation imposed on tax exempt charities, the role that racial diversity might play on tax exempt organization boards of directors and the current statutory prohibition on racial discrimination by tax exempt social clubs.

  • Paul Caron

    SOI 1997 Gift Data

    Tuesday, April 27, 2004

    In the just-released Statistics of Income Bulletin (Winter 2003-04), Martha Britton Eller reports on Inter Vivos Wealth Transfers, 1997 Gifts. Here is the abstract:

    Federal gift tax data provide a glimpse into the economic behavior of predominantly wealthy Americans. Such behavior includes donors’ transfer of money and other assets to gift recipients and the creation and continued funding of trusts, both of which are reported on gift tax returns. The population of donors who gave gifts in 1997 and reported those gifts to IRS in 1998 included 218,008 individuals, and those individuals transferred more than $31.1 billion in total gifts. The reported gift tax liability totaled $3.2 billion. Female donors outnumbered male donors, with 53.3 percent of the donor population comprised of females and 46.7 percent of the population comprised of males.

    Donors gave a wide variety of gifts. The largest category of gifts was cash and cash management accounts, which made up more than a third of all gifts. The second and third largest categories of gifts were stock and real estate, respectively. While only a small percentage of donors, 10.1 percent, utilized discounts in the valuation of gifts, the size of total vaulation discounts, $3.4 billion, was rather significant and represented 33.0 percent of the full value of discounted assets.

    For a previous study by Ms. Eller, Analysis of the 1998 Gift Tax Penal Study, presented at the 2002 Joint Statistical Meetings of the American Statistical Association, see here.

    Over the coming week, TaxProf Blog will summarize the remaining Featured Articles and Data Releases in the latest SOI and provide links to the full reports and accompanying tables and statistics.

  • Paul Caron

    Where Tax Court Judges Went To Law School

    Tuesday, April 27, 2004

    Inspired by Brian Leiter’s post about where federal district court and court of appeals judges went to law school, TaxProf Blog checked out the educational background of the 17 Tax Court Judges from the Tax Court web site.

    Interestingly, the 17 judges earned their JD degrees from 17 different law schools:
    * UC-Berkeley
    * Chicago
    * Colorado
    * DePaul
    * Duke
    * Emory
    * George Washington
    * Georgetown
    * Houston
    * Illinois
    * Kentucky
    * Maryland
    * Montana
    * Pennsylvania
    * South Dakota
    * USC
    * Virginia

    9 of the 17 judges earned tax LL.M. degrees:
    * NYU (6)
    * Georgetown (2)
    * Boston University (1)

    11 of the judges were appointed by Republican Presidents, 6 by Democratic Presidents.

  • Paul Caron

    US Joins with 3 Allies To Fight Tax Avoidance

    Tuesday, April 27, 2004

    According to an article in the New Zealand Herald, “the United States, Britain, Canada and Australia are setting up a new international taskforce to fight tax avoidance, which may be up and running by the summer. A United Kingdom source said senior tax officials from the four countries had been meeting in Williamsburg, Virginia, before the spring meetings of the International Monetary Fund and World Bank in Washington.”

  • Paul Caron

    SOI Releases Data on 2002 Individual Tax Returns

    Tuesday, April 27, 2004

    The just-released Statistics of Income Bulletin (Winter 2003-04) includes Individual Income Tax Returns, Preliminary Data, 2002. Here is the abstract:

    Taxpayers filed 130.2 million U.S. individual income tax returns for Tax Year 2002, a decrease of 0.2 percent from the 130.5 million returns filed in 2001. Adjusted gross income less deficit decreased 2.3 percent to $6.0 trillion for 2002. Taxable income declined 4.3 percent to $4.1 trillion. Total income tax fell 10.6 percent to $797.8 billion, and the total tax liability also decreased 10.1 percent to $834.3 billion. At the same time, statutory adjustments to total income increased 28.4 percent, from $58.6 billion to $75.3 billion; total deductions increased 1.9 percent to $1,373.6 billion; and total tax credits used to offset income tax liabilities decreased 13.8 percent to $39.0 billion. The total earned income credit for all income size classes increased 14.4 percent to $38.7 billion for Tax Year 2002.

    For a related Excel table of data, see here. For more statistics on individual income tax returns, see here.

    Over the coming week, TaxProf Blog will summarize the remaining Featured Articles and Data Releases in the latest SOI and provide links to the full reports and accompanying tables and statistics.

  • Paul Caron

    Larson on Evidence Rules in the Tax Court

    Tuesday, April 27, 2004

    Joni Larson (Thomas Cooley) has posted Tax Evidence II: A Primer on the Federal Rules of Evidence as Applied by the Tax Court on SSRN. Here is the abstract:

    The United States Tax Court applies the Federal Rules of Evidence (the “Rules”) during its proceedings. These rules establish the guidelines the judge will use to determine what testimony and documents will be admissible in evidence.

    We follow the Federal Rules of Evidence in our proceedings. This provides all parties with ground rules for presenting their cases. To depart from these rules not only would contradict our mandated authority but also would prejudice the parties by removing the certainty of what the Court may consider in finding facts. A party could not adequately prepare or defend a case if it were uncertain what standards would be applied to judge the admissibility of evidence. While it is generally accepted that a relaxed application of the rules of evidence during a bench trial results in less prejudice to the fact finder because of a judge’s legal training and experience, the uncertainty of what will be used to find facts is highly prejudicial to a party whether the fact finder is a judge or a jury. Incompetent evidence should not be admitted to proof. We, therefore, believe that adhering to the Federal Rules of Evidence is a sound way to protect the integrity of our proceedings.

    In order to present the best case possible, it is imperative for a party litigating in the Tax Court to understand the Rules and how they have been interpreted and applied by the Tax Court.

    This Article surveys the Tax Court’s interpretation and application of the Rules. It updates and expands an earlier version of this Article. The Article does not discuss the application of the Rules by federal district courts, the Court of Federal Claims, or the federal circuit courts of appeal, except to the extent there is a split of authority in the circuit courts. Appendix A identifies those Rules that have not been addressed or interpreted by the Tax Court in its opinions. Appendix B provides a tabular summary of the Rules most commonly used in the Tax Court and their various foundational requirements.

TaxProf Blog delivers timely, insightful coverage of tax law and legal education to inform, connect, and inspire scholars, practitioners, and students.

Ad: BlueJ Better Tax Answers. Blue J's generative AI tax research solution is transforming how tax experts work. Learn more.
Information and rates on advertising on TaxProf Blog