TaxProf Blog

Tuesday, May 25, 2004

Cheryl Block (George Washington) has published Congress and Accounting Scandals: Is the Pot Calling the Kettle Black?, 82 Neb. L. Rev. 365 (2003). Here is a flavor from the Introduction:

Congress itself has been guilty of using accounting devices remarkably similar to those used by Enron, WorldCom and others to “cook the books” and to mislead the public with regard to government finances….temptations for the government to engage in creative accounting may be even greater than those in the private sector.

Many budget commentators have complained about congressional gimmicks used to misstate or misrepresent the true state of the federal budget. To my knowledge, however, none of them has made an effort to compare the gimmicks used by Congress with those used by private-sector firms. One of the questions raised in this Article is the extent to which mere “gimmicks” in the hands of federal budget-makers might be considered accounting, tax, or securities fraud in the hands of the private sector. Further, if the gimmicks would be so considered, is the double standard justified? This question takes on added importance as Congress now seeks to hold the private sector to higher standards through recent corporate accountability legislation and as Congress considers proposals for budget reform.

Monday, May 24, 2004

Calvin Johnson (Texas) has posted The Incredible Shrinking Domain of Corporate Stock on SSRN. Here is the abstract:

Twenty-five years ago, the best tax vehicle for a business enterprise was clearly growth stock, in which the corporation accumulated its earnings. The growth stock strategy was so advantageous that shareholders could tolerate managers taking rents out of the corporation in excess of the value they added. With the drop in individual rates, however, using a corporation subject to section 11 tax is getting very hard to justify. Corporate stock is clearly rational only as an estate-planning device for investments that will benefit from the step-up in basis at death. For very-long-term investments, Johnson explains, corporate stock might be justified if it causes sufficiently higher pretax return to the enterprise, if it convinces investors to accept sufficiently lower after-tax returns, or if corporations have sufficiently better access to tax shelters. As the term of the investment gets shorter, however, the tax barriers to use of corporate stock get higher. At investment terms of, say, five years, Johnson concludes that the barriers to use of the corporate form look insurmountable.

Sunday, May 23, 2004

R. Glenn Hubbard (Columbia Business School) has posted Tax Policy and International Competitiveness on SSRN. Here is part of the abstract:

This article discusses the role of tax policy in improving the international competitiveness in improving the international competitiveness of U.S. industries. The existing U.S. tax law governing the activities of multinational companies has been developed in a patchwork fashion, with the result that current law can result in circumstances that harm the competitiveness of U.S. companies…. [T]he current U.S. international tax rules should be reviewed with an eye to reducing their complexity and removing impediments to U.S. international competitiveness.

Saturday, May 22, 2004

The Harvard Law Review has published Governmental Attempts to Stem the Rising Tide of Corporate Tax Shelters, 117 Harv. L. Rev. 2249 (2004), as part of its Developments in the Law — Corporations and Society. Here is part of the Conclusion:

The impossibility of reaching a definition of tax shelters that is neither under- nor overinclusive demonstrates the futility of attacking them head-on….Regardless of whether the ultimate solution proves to be a simplification or a more radical shift to a less easily manipulated tax base, some sort of substantive disallowance rule may provide a stopgap measure and a step toward a principled policy response. Because of the uncertainty such a rule would create for taxpayers who wish to rely on the published rules, however, it would be no substitute for substantially reforming the Code. What makes the concept of economic substance so immediately appealing is that it would seem to instill a notion of fairness into the “abomination” that the Code has become. However, a long-term improvement will be realized only if adopting a substantive disallowance rule signals the coming of an era in which Congress respects the Code and exercises more care for and control over its contents. Until taxpayers are convinced that the tax system is more than a lengthy compilation of special preferences, one should expect taxpayers to expend their superior resources (successfully) eluding Congress’s carefully crafted rules.